Part 3: Central Bank Policy Influences Demand for Household Credit
Continuing from Part 2... Our Nattering: "So am I to take it that we have domestically declining: capital formation, available credit, credit demand and price (interest rates)."
DDLA: No, available credit is NOT declining, which is why interest rates ARE declining. If both available credit and demand for credit were declining, interest rates would not decline. It is about the ratio of supply to demand.
DDLA: "it is rate of growth of demand for credit vs. available credit. So long as there is more credit available than demand, the price of credit, to wit interest rates, will remain low. Since the 1980's, the rates of capital formation have declined"
We Nattered: Classical Capital formation or capital accumulation: the total "stock of capital" that has been formed, or to the growth of this total capital stock. More modern usage: any method for increasing the amount of capital owned or under one's control, or any method in utilising or mobilizing capital resources for investment purposes.
You claim above that capital formation is declining. Less capital formation would imply either less available capital for credit purposes or...
the inability to bring it together, in which case, same end result, less available capital for credit purposes.
DDLA: "No, available credit is NOT declining, which is why interest rates ARE declining."
We Nattered: Declining capital formation (which you claim) can lead to less available capital for credit. But you claim the opposite, available credit is rising. I would claim that capital formation, available credit and demand are all rising, as the FRED graphs in my other comment (Part 1) clearly indicate.
As Kertch, Salmo and myself have paraphrased above: "If there is no shortage of credit then increasing capital formation is not the answer. It all depends on how that capital is invested."
It is a fact that interest rates are suppressed because of the historical dynamics already alluded to by Salmo, the side effects of QE (the secular stagnation of media narrative) malinvestment, perversion of capital and finally, as there can be no simpler mechanism: central bank policies (ZIRP). This isn't reality, this isn't natural, its artificial as in: there is something in this more than natural.
More to come in Part 4.
DDLA: No, available credit is NOT declining, which is why interest rates ARE declining. If both available credit and demand for credit were declining, interest rates would not decline. It is about the ratio of supply to demand.
DDLA: "it is rate of growth of demand for credit vs. available credit. So long as there is more credit available than demand, the price of credit, to wit interest rates, will remain low. Since the 1980's, the rates of capital formation have declined"
We Nattered: Classical Capital formation or capital accumulation: the total "stock of capital" that has been formed, or to the growth of this total capital stock. More modern usage: any method for increasing the amount of capital owned or under one's control, or any method in utilising or mobilizing capital resources for investment purposes.
You claim above that capital formation is declining. Less capital formation would imply either less available capital for credit purposes or...
the inability to bring it together, in which case, same end result, less available capital for credit purposes.
DDLA: "No, available credit is NOT declining, which is why interest rates ARE declining."
We Nattered: Declining capital formation (which you claim) can lead to less available capital for credit. But you claim the opposite, available credit is rising. I would claim that capital formation, available credit and demand are all rising, as the FRED graphs in my other comment (Part 1) clearly indicate.
As Kertch, Salmo and myself have paraphrased above: "If there is no shortage of credit then increasing capital formation is not the answer. It all depends on how that capital is invested."
It is a fact that interest rates are suppressed because of the historical dynamics already alluded to by Salmo, the side effects of QE (the secular stagnation of media narrative) malinvestment, perversion of capital and finally, as there can be no simpler mechanism: central bank policies (ZIRP). This isn't reality, this isn't natural, its artificial as in: there is something in this more than natural.
More to come in Part 4.
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