These type of contract use banks to protect from different type of risk, interest rate risk, currency risk etc... Can somebody explain me how these works in practice?
Esuric:Why do you use useless jargon like "nominal" and "real" interest rates? They're meaningless, no one knows the true level of inflation, nor do they know the real rate of interest. Since this information is nonexistent, the Fisher effect should be ignored. There's the market rate of interest, which is seen, and then there's the natural rate of interest, which, like the real rate of interest, is unknown.
Yes men this is the true natural rate of interest that's the most important thing. Problem is that people don't know that interest rates are prices like every other prices. Who can tell us how big is inflation rate?... Nobody, and because of that "nominal" and "real" interest rates are useless information.
Esuric:"we don't know what money is anymore."
Completely right. Today is impossible to measure the supply of money, and specially monetary aggregates like M1, M2, M3, M4...
fsk:I consider the price of gold to be the most accurate measure of inflation.
How can the real rate of interest be -19.75% or -29.75% when the supply of savings is around 6%? Negative investment demand (is this possible)?
fsk: I consider the price of gold to be the most accurate measure of inflation.
I consider the price of gold to be the most accurate measure of inflation.
I define inflation as an increase in the money supply, so I think the change in money supply is the most accurate measure.
JackCuyler:I define inflation as an increase in the money supply, so I think the change in money supply is the most accurate measure.
Nobody knows what this means. People define the money supply differently.
Esuric:How can the real rate of interest be -19.75% or -29.75% when the supply of savings is around 6%? Negative investment demand (is this possible)?
The reason is the Federal Reserve price fixing cartel. The Federal Reserve has the power to create as much money as it desires, no matter how much people actually choose to save.
The people who profit by borrowing money at negative real interest rates are stealing from everyone else via inflation.
If you put money in a bank checking account, you're a fool. You're guaranteed to get ripped off by inflation.
I have my own blog at FSK's Guide to Reality. Let me know if you like it.
fsk: The reason is the Federal Reserve price fixing cartel. The Federal Reserve has the power to create as much money as it desires, no matter how much people actually choose to save. The people who profit by borrowing money at negative real interest rates are stealing from everyone else via inflation. If you put money in a bank checking account, you're a fool. You're guaranteed to get ripped off by inflation.
Wouldn't it be easier to say that the FED, though inflation, creates a disconnect between the market rate and natural rate of interest? Theoretically speaking, you can't have negative "real" interest rates.
In a free market, you can't have negative "real" interest rates. People would hold onto gold and silver instead of investing for a negative rate of return.
The Federal Reserve causes the actual interest rate to be far lower than it would be in a free market.
With fiat money, people can't defend themselves from theft via inflation by holding cash. If you hold cash, you still get ripped off by inflation.
The problem is that fiat money has an intrinsic value of zero. The banksters are profiting off the arbitrage between the "fair" value of fiat money (zero) and its current value (nonzero).
When you realize "fiat money has an intrinsic value of zero", then there's a division by zero error in all other economic calculations.
Esuric:you can't have negative "real" interest rates.
Its impossible because if we have negative interest rates, investments were also be negative.
nermin:Its impossible because if we have negative interest rates, investments were also be negative.
Yeah, which is quite impossible. Lamborghini engine.
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