When is the price of some marketable good or service at or near zero? When either the supply of it is so plentiful that virtually any demand, no matter how great, can be satisfied. Or when no matter how large or small the supply of it may be, people’s demand for it is so low that nobody is willing to practically pay anything for it.
Tagged: interest rates
It is seventy years, now, since near the end of the Second World War Austrian economist, and much later Nobel Prize winner, Friedrich A. Hayek published his most famous article, “The Use of Knowledge in Society,” in September 1945, demonstrating why it is impossible for a system of socialist central planning to effectively manage a complex and ever-changing economy better than a functioning, competitive free market order.
Financial markets in the United States and around the world are all waiting with “bated breath” for when the Federal Reserve modifies its “easy money” policy and starts to raise interest rates. No one, however, asks a simple question: Why is the American central bank in the interest rate setting business?
Since the economic crisis of 2008-2009, the Federal Reserve – America’s central bank – has expanded the money supply in the banking system by over $4 trillion, and has manipulated key interest rates to keep them so artificially low that when adjusted for price inflation, several of them have been actually negative. We should not be surprised if this is setting the stage for another serious economic crisis down the road.
One hundred years ago this month, on December 23, 1913, the Congress passed the Federal Reserve Act, establishing a national central-banking system in the United States. The governing board of the Federal Reserve was organized on August 12, 1914, and the Federal Reserve banks opened for operation on November 16, 1914.
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