No. The Fed doesn't set rate schedules based on aggregate demand. That would be a market-based approach and they couldn't have that. ;) The Fed sets rates based on the weakness of the economy in general AND how much money they are pumping into the economy either by printing or buying their own bonds. Both the Federal Reserve AND the Federal Government want inflation because it devalues debt service obligations. The Federal Government also likes it because it forces companies to continue to offer cost-of-living increases that don't really affect purchasing power but still push their employees into higher tax brackets.

"Generally tighter monetary policy reduces inflation. So in my model, current loose policy should result in high inflation, but that hasn't happened."

Generally, yes. But it also assumes that capital has another place to go for investment purposes, and that is where the model breaks down. Bond returns are actually negative right now for Treasuries. Stock prices are bubbling: rising despite no real growth in corporate earnings or profits. Real Estate is seeing a bubble as well as at least they are a real asset, but they are horribly over-priced in my area (though the county governments don't mind the tax income one bit). That's why many companies are simply sitting on their cash: there is no place to invest it that generates a real return at reasonable risk.

The other problem is that the Fed is still holding much of the money they printed: they didn't release it into the economy. That would have seen inflation happen, and in general inflation is still happening, it's just in some sectors a lot more than others. Look at food prices for a good example of inflationary pressures.

"Whether inflation is a 1% or 6% doesn't affect my world either."

It affects my world (food service) no matter what the number is.

I agree. Competition would change the landscape, but that won't happen until/unless customers take away their support for the system. A lot like the political system.

". Derivative products are things like index funds and such,"
Like people trading instruments that attempt to track the spot price of some commodity. I think you're point is their asset appears as a liability on someone else's books, or vice versa, whereas if they held the actual thing, they would own it without it appearing on someone else's books. They say, I'm 10% in gold, but they're really not. You're saying their 10% in contractual obligations intended to track gold.

"If you disagree that the squeeze, the regulations the non-productive expenses that I very generally described on small business aren't the reason for your model to be "not working" then. You should present your evidence."
The reason is I don't see a sudden change in the legal environment. I see amazing room for improvement, but I don't see it having changed in my lifetime enough to account for the fall in rates I've seen during my lifetime.

It may be different in my area of the Country than yours, but even though my state sports an extremely high amount of road area compared to the number of citizens, we're in pretty good shape. Perhaps you can comment on your area and the infrastructure projects you see lacking.

B of A took a big bailout, which I didnt like one bit. As long as I can do things online and they dont go south, things seem to be ok with their systems. BUT, if something goes wrong, they are a real disaster to deal with and it takes forever. I like them about as much as I like microsoft. I feel like a victim, not a customer.

I suspect most banks today, and probably all of them tomorrow will be servants of the government. The bank of PVC pipe in my backyard seems a lot safer than with a bank that can restrict access to my funds at any time

Now you're making a claim I can understand. You're saying if I think I'm a market maker for stocks and can make a money on the bid/ask spread, then I'm confused. I obviously know that. If you're saying fundamentals are more important than technicals, I agree with that too.

Isn't what we're saying true for everything? I imagine your wealth is in local investments that are way less liquid than stocks. When you acquire them, the seller has no obligation to sell you to. In fact, if you buy RE at the steps in a small county, maybe local investors have an informal agreement not to bid up the price too much and to let the deal go to who's "turn" it is. That doesn't make every RE investor a mark.

I never said you were bad, I said you weren't trading in actual assets.

"Puts" and "calls" are also known as stock "options" and are contractual obligations to purchase or sell actual assets at predefined prices, but these aren't necessarily derivative products. Derivative products are things like index funds and such, where they are measures of something else entirely but don't actually constitute tangible assets.

"The government arranged this because as soon as interest rates rise significantly above zero, the interest on the now 14-digit national debt will be over $1T/year all by itself."
Isn't it also for reasons of aggregate demand? Suppose the federal budget were balanced. I think they'd maintain ZIRP. I could be wrong on this. Maybe the balanced budget would allow higher growth, allowing for higher rates. I'm hazy on the interplay between monetary and fiscal policy.

"as soon as interest rates rise significantly above zero, the interest on the now 14-digit national debt will be over $1T/year all by itself. And from there it only spirals up into runaway inflation "
Generally tighter monetary policy reduces inflation. So in my model, current loose policy should result in high inflation, but that hasn't happened.

Straightlinelogic has offered some explanations of this that I only partly understand.

"I'm sure the government is fudging the Consumer Price Index the same way they're fudging the unemployment number."
I try to focus on numbers I believe in and ignore those I think are wrong. I tend to trust GDP deflator, but I know people have their own methods. In my work knowing the exact number of inflation isn't important. Whether inflation is a 1% or 6% doesn't affect my world either. I know it's different for people doing large equipment and basic materials, but that's far from my world.

" The government is in a trap it can't get out of without hosing the reputation of whoever is unlucky enough to be in office when the public starts to notice the problem."
If you mean the fiscal deficit, I hope Gary Johnson takes office and starts to fix it before it turns into an acute crisis. I agree it's politically hard to fix, but it's also incredibly easy to fix apart from the political issues. If they just locked nominal gov't spending at its present level, not a radical suggestion, the problem would disappear. It drives me nuts that we wait until a crisis and cry "hoocudanode!?"

You are assuming that the new shares issued at cheap prices are available to you. They are often transferred in private placements and don't trade on the open markets until later after manipulating the share prices. You don't set the price on the small company shares you trade from your phone either. Its set by the market maker in the shares. He can ignore your order forever while filling his company orders. Unless you want to place a stop loss, where he will lower the price down to your stop, steal your shares at that price, and raise the price back up to sell the shares at a profit. I have watched it happen repeatedly. The game is rigged and you are the mark.

Ahh, B of A. What a den of thieves, which makes them not much different from the rest of the banksters. I do have an account that I opened in order to have a workable wire function overseas. (Wells was unsure how to get it done in the week before I left and I had banked there for years.) That need has passed and I am switching to a "local" bank for a while.
My earliest experience with B of A kept me away from them for 30 years. I opened an account in LA after asking how long the hold would be on a sizeable check from Merrill Lynch that I had in hand. They promised 2 days hold and after i made the deposit they held the funds for 10 days. That was when I withdrew the cash, closed the acount, and walked across the street to Security Pacific. i haven't had any trust in BofA since, and still don't.

"Small companies share prices are manipulated by these insiders. "
Maybe I'll never get this. We can "manipulate" a small company right now from our desk just by taking a large position in it.
"Guess who buys these cheap shares?"
Anyone who wants, right. We can do it from our phones. If you're thinking you're a simple investor and just want to hold the shares b/c you think their onto something big, you can do that. If you feel like it's needlessly volatile you could own the shares and write calls covered by them. If they get called away due to this "artificial" volatility, you could write puts every month, and then if you should get assigned, you own the shares again. If you think analysts are creeping around the company to get information before you do (you're probably right about this; they can be tricky in my experience) and it's bad enough you don't want to own the shares, invest in some enterprise whose management team you believe in and that you feel you have a solid handle on.

Maybe I'm wrongly interpreting what you're saying as victim thinking. You've been very patient with me trying to explain, but I still don't get it.

how about ralph loren closing 50 stores- so you think what is going on in denmark is somehow significant when we the economic engine of the world are collapsing.

" Many of the derivative products aren't really actual assets or claims on assets"
I just don't get this. I write a put and you buy it, it's an asset on your books and liability on mine. It's a transaction we enter to transfer risk from you to me. Why are we bad if we want to enter into such an arrangement?

I respectfully disagree on one of your points. The infrastructure is indeed crumbling but has been caused in part by the prevailing wage issue you bring up. There has also been gross misapplication of tax money on worthless projects and mandatory spending on "alternative" transportation projects, ie walking trails. The true backbone infrastructure has been neglected and we have been living on borrowed time not just borrowed money. Because we are talking about public projects not enough capital has been reinvested to maintain the engines that keep us running.

I do a lot of dealings with companies in china and B of A has a great (but expensive) wire transfer system. I tried to go with Wells Fargo awhile ago, but they need me to come to the branch to send a wire. I just cant do that 50 times a year.

I think I will change my personal banking to another bank though

I found BofA to be the hardest bank I ha ever dealt with. Got out of there many years ago.
PVC huh? Never thought of that. If the Clinktons win, stuff may become more valuable than money in a few years into the future.
Hold a séance and let me know.

The biggest and easiest way to fudge CPI is by excluding the cost of energy. Which they do.

Short answer: the Fed has been keeping interest rates near zero by buying up (with money it pulls out of its ass) Treasury bonds that the public won't buy.

The government arranged this because as soon as interest rates rise significantly above zero, the interest on the now 14-digit national debt will be over $1T/year all by itself. And from there it only spirals up into runaway inflation -- there is no hope of the taxpayers ever paying it back. The government is in a trap it can't get out of without hosing the reputation of whoever is unlucky enough to be in office when the public starts to notice the problem.

Of course creating that new money is more inflation anyway. Just looking at prices locally, I'm sure the government is fudging the Consumer Price Index the same way they're fudging the unemployment number.

Theres the bank of the PVC pipe in a secret place in the backyard too.

I have been with B of A for a long time, but they are trying as hard as possible to sneak in fees regardless of any reasonable balance one keeps with them.

I will look around to find another bank or banks soon.

There are lots of banks currently offering interest free checking, by keeping a relatively small amount in a savings account. I'd rather put my money in a safe than paying to hold it.

American banks are eyeing negative interest rates, where they charge you for holding your money as they make money with your money. I would advise most of you to put in a supply of KY Jelly. If Mrs. Clinkton is elected, negative interest is as sure as the phases of the moon to occur.

always follow the money trail...it is theft by politicians, banks, and govt.

The "crumbling infrastructure" is media hype. It's used to get Senators and Congressmen to sign on to spending bills through blatant pork projects such as generous funding for roads and such. When I lived in Montana I saw several roads there sporting large signs touting that 90% of the cost for the road re-paving was coming from Federal payouts. It's also used to fund the construction companies (usually unionized) who make obscene amounts of money on these projects due to David-Bacon rules regulating minimum pay of $35/hr. I've got an MBA and 20 years in IT and I don't make as much money as that person directing traffic at a construction site.

"Crumbling infrastructure" is code for union payouts - not real investment in the economy.

Glad some one else see's this!