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From: steiny@idsvax.UUCP (Don Steiny)
Newsgroups: net.invest,net.misc
Subject: Re: Re: Re: "World Banking Crisis" -- what is it?
Message-ID: <173@idsvax.UUCP>
Date: Sat, 22-Jun-85 02:35:33 EDT
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Posted: Sat Jun 22 02:35:33 1985
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Xref: watmath net.invest:686 net.misc:8139

>
> > 	Note that the policies of the current administration
> > are modern day brinksmanship.  By keeping the interest rates
> > high in the US, inflation has been subdued.
> 
> Not correct.  
> 
> Banks are being cautious about lowering their
> rates too low.  When the prime is lowered too low (and if at
> some later time it shoots up) the banks could get stuck
> with too many low interest non-profitable loans.  Thus,
> the prime will come down slowly, as it has.
>
	The banks have to borrow their money from the Federal
Reserve.  The interest rates are under the control of the Federal
Reserve, specifically Paul Volker, they have been for many years.
> 
> 
> > 	On the other hand, if interest rates came down dramatically,
> > most economic models predict that inflation would rise.  
> 
> How dramatically?  I've heard of interest rates being 
> affected by inflation, not the reverse.
> Which economic model?
> 
> Brett Fleisch

	The model is called "Keynesian Economics" and its dirivitives.
It is named after John Maynard Keynes, a British economist who
influenced Roosevelt to institute the policy of deficit spending
by the government to break up economic stagnation.   Except for
the more recently mediaized "Laffer Curve,"  I know of no other
model that is as widely known and influential.  Richard Nixon
said "I am a Keynesian,"  the one thing he had in common
with Roosevelt :-).  

	If you read the business section of your local paper
you will see an occasional report on the money supply, M1.
This is the money in checking accounts and cash.  Just this
morning the San Francisco Chronicle reported that M1 was growing
beyond the Federal Reserve's target.   Supposedly, when M1 gets
very large, inflation happens.  It is the old "printing money
to pay debts" thing.  To prevent M1 from getting too large,
the Federal Reserve *increases interest rates*.  For that  reason,
when the business section reports a giant increase in M1, it usually
causes a stock drop because that means that there will be
an increase in interest rates.


pesnta!idsvax!steiny
Don Steiny - Computational Linguistics
109 Torrey Pine Terr.  Santa Cruz, Calif. 95060
(408) 425-0832