Saturday, October 4, 2014

Sinking in

I'm relaying a few topics on which others can speak better than I [can speak].

First is an article on Acting Man by Keith Weiner. He is an Objectivist (a follower of Ayn Rand). I am not, so I don't think that corporations are good a priori, which is the implied flip-side of the coin[age] of his well-observed second paragraph. I am not a follower, due to ignorance, however. Note the comma, first. (I've read none of Rand's works)*.

He also omits that DARPA, a gov't agency, was the main sponsor of what became the Internet. Be that as it may, his article is worth reading for its dispelling of some common myths. And then: "The bond is payable only in dollars. The dollar is the liability of the Fed, backed by the Fed’s assets—which are primarily government bonds. Let that sink in."

Did you learn this in school? I didn't. So by writing this, I am attempting to understand...

The second topic is that of a rising interest rate. Given that the rate has to be low for the reasons alluded to above, I've worked out the following:

1. The government spends more than it takes in. The obvious corollary is that taxes don't cover expenses. Thus, the gov't has to get money from elsewhere, namely by borrowing it. And it's better to borrow at a low interest rate.
2. The Fed then lends the gov't money, aka 'Federal Reserve Notes', in return for bonds as collateral, or what seems to be the purchase of bonds. Important: it's collateral in that the debt is not extinguished. The bonds are to pay interest, so that the Treasury owes the Fed for the money it is lent. And it's better to pay back little interest, than a lot.
3. So how to keep interest low? Since the higher the bond price, the lower the rate, it's good to have a high price. And how to get higher prices? By keeping the demand for bonds high. And how to do that, but by buying bonds...

Does your brain hurt too? This may not be correct. In about 13 minutes I'll be drinking wine. And I didn't comment on this speech by Dallas Fed president Richard Fisher, or this article by financial manager Bill Bonner. But please, reader, read.


* Big Sister Is Watching You