Interest Rates in Austrian Theory

Check out Prof. Cowen’s popular econ blog: http://www.marginalrevoultion.com What is the central claim of Austrian Business Cycle Theory? Prof. Tyler Cowen b…
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23 Responses to “Interest Rates in Austrian Theory” Subscribe

  1. Taylor Chambers June 14, 2013 at 2:37 am #

    Austrian school seems to be the only economic thought process that incorporates the hurdle rate Weighted Average Cost of Capital. When you have a loan with an APR based on reserves, you get, not only a more secure and savings oriented economy, but also Net Capital Spending stability too!

  2. Em Chan June 14, 2013 at 3:32 am #

    It sounds like what he’s talking about is that focus on interest rates is similar to cost-of-production analysis, which is silly, because it doesn’t concern itself with the [perceived] value of the product itself. Am I off?

  3. noway63244 June 14, 2013 at 3:57 am #

    The description is actually for this video: watch?v=Log_dcRj7HI

    I think they made a mistake with this video’s description.

  4. noway63244 June 14, 2013 at 4:45 am #

    Even when you finance a project entirely out of your own savings, the interest rate matters because you still have the option of borrowing and investing your cash somewhere else.

  5. commiekiller1989 June 14, 2013 at 4:50 am #

    Oh yeah, it’s bad. In fact the Fed just recently announced to purchase 45 Billion dollars a month worth of Treasuries ON TOP of the 40 billion dollars a month in Mortgage back securities they were already buying. That is basically 85 Billion dollars a month of new money being added into the existing money supply. The dollar is doomed.

  6. Castorios June 14, 2013 at 5:03 am #

    thanks for the clarification, so if the FED does buy any major bond dump in the future, I guess it can keep rates low for a long time if it wishes.
    But this would be bad no ?, if bonds are bought/traded with/for USD, wouldn’t that cause huge spikes in the money supply ?

  7. commiekiller1989 June 14, 2013 at 5:14 am #

    Ah, ok I see your confusion.
    Bond rates are set by the Treasury department dependent on demand. Most other interest rates within the US are set by the FED. However, the FED can, and does, manipulate bond rates by purchasing large quantities of bonds from the Treasury. This raises the “demand” making the rates lower.

  8. Castorios June 14, 2013 at 5:54 am #

    so the interest rates are dictated by bond buyers (the market), not the FED ?

  9. commiekiller1989 June 14, 2013 at 6:41 am #

    A loss of confidence means that the lender is questioning whether the borrower will be able to repay. If a lender believes that the borrower has a higher chance of defaulting he will increase interest rates to mitigate this risk.

    With governments its basically the same thing but a little different. Gov will raise rates on bonds if demand is not sufficient enough to meet funding requirements. Demand goes down when creditors believe Gov will have a hard time paying back.

  10. Castorios June 14, 2013 at 7:04 am #

    when people talk about ‘a loss in confidence would cause interest to go up’ what does that mean ?

  11. commiekiller1989 June 14, 2013 at 7:24 am #

    Interest rates ARE controlled by the Fed.
    Interest rates SHOULD be controlled by the free market.

    I would be interested to see the videos that say the interest rates are controlled by the market.

  12. Castorios June 14, 2013 at 8:07 am #

    I still don’t know why I keep hearing that interest rates are controlled by the FED in some videos, and in other videos they say that interest rates are determined by the markets…

    Please can someone tell me why I am confused ??

  13. Kav Kelly June 14, 2013 at 8:32 am #

    Quite poor from the usually excellent learnliberty. Spent more time talking about the monetarist view of interest rates than Austrian school. Also, the Austrian school is acutely aware that some sectors are more affected than others by the interest rate, ie those industries with longer more complexproduction structure. A small change in the interest rate can mean the difference between whether projects in these industries are started or not due to their marginal nature.

  14. megadeathx June 14, 2013 at 9:11 am #

    OR bad luck. It’s not always one’s own actions which causes them misfortune. It OFTEN is one’s own fault, but not _always_.
    Take as an example, the highly skilled tradesman who’s trade skill becomes obviated by some new technology, or who’s market demand evaporates due to a related market crashing. Through no actual fault of his own, he becomes unable (sometimes suddenly) to support his former standard of living. Detroit autoworkers versus Asian imported vehicles, for example.

  15. BWoodRVA June 14, 2013 at 9:58 am #

    I’m gonna put this on a loop and smoke a blunt and let this music and Austrian Theory take me to a higher plane

  16. Karl Wieck Davidsen June 14, 2013 at 10:46 am #

    OMFG please tell my the name of that background song!!!! ITs so tranquillin

  17. Deltrix4762 June 14, 2013 at 11:14 am #

    the description says revoultion, not revolution

  18. Pwecko June 14, 2013 at 11:43 am #

    It’s lucky this video was so short. That music was driving me mad.

  19. AppTRL June 14, 2013 at 12:19 pm #

    That’s because it’s the written text of Cowen’s Austrian Theory video..

  20. jon boner June 14, 2013 at 1:01 pm #

    lmao austrian economics. get that shit out of here

  21. anacap007 June 14, 2013 at 1:16 pm #

    Good point. I didn’t consider the opportunity costs of said project.

  22. Nicholas Bonasoro June 14, 2013 at 1:43 pm #

    interest rates still matter in this situation because they help determine whether or not that funding is best used in the project or in investment or being placed in a cd etc

  23. razerfish June 14, 2013 at 2:24 pm #

    Friedman was wrong. The Austrians were right. Get over it.

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