Friday, October 3, 2014

The Fed and Low Rates

Everyone seems to agree that the Federal Reserve is responsible for our very low interest rates.  Maybe they're not.

In the 1930s, the yield on 3 month treasury bills never exceeded 1/4 of one percent....ever for the ten year period starting in 1929.

What was the Fed doing then?  Random stuff.  From 1929-1933, the money supply fell and then later rose and fell with no particular pattern.  Yet, rates stayed on the floor.  So, what role did the Fed play then?

Maybe, it's not the Fed.  True, the Fed balance sheet is out of control, but rates may be low for the usual supply and demand reasons.

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