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The Interest Rate Debate: Mr. Practical & Minyan Peter


What's the best cure for our debt debacle?

Dear Minyan Peter and Mr. P,

I'm curious about the discrepancy between Minyan Peter (who advocates a low interest-rate ceiling on bank deposits) and Mr. Practical (who espouses a somewhat higher Fed interest rate to attract savers to get a better return on their investments).

Is there a way a dialogue on Minyanville could take place around this philosophical divergency?

Minyan Jeff

Mr. Practical's Response:

Dear Minyan Jeff,

Peter may be discussing a condition he believes is necessary to keep things from imploding. I, on the other hand, advocate higher rates, knowing it would initially cause implosion - but in the long run, it's a necessary condition to reduce imbalances.

Interest rates are the price of money. The lower the price of money, created artificially, the more imbalances will linger. The more lending, whatever amount, will continue to occur to lend to create unproductive assests. In other words lending is done at the wrong price.

If things were left to market devices, interest rates would rise because there are too many dollars in the world already printed. Savers could earn a decent return and actually spend more. Savers would lend at higher rates for the risk. There would initially conditions were prices of all things would go down a lot (the dollar would rally), but that's good for savers and the middle class.

Mr. P.
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