[sourcery]

Why was that if inflation is irrelevant?

I never said inflation is irrelevant. If that's what this is all about, please understand that I consider inflation to be a very significant subcomponent of interest rates.

However, inflation cannot be a factor or determinant of real interest rates, now can it? And yet the real interest rate is not a constant. Why does it change?

[Phaedrus]

However, inflation cannot be a factor or determinant of real interest rates, now can it? And yet the real interest rate is not a constant. Why does it change?

I should have copied you on my response to Starwind. I think we're looking at a pretty good fit, all things considered.

[Phaedrus]

I have now read The End of Dollar Supremacy? and it expresses extremely well my concerns about massive and continuing trade and balance of payments deficits (this trend is decades-long). It also correctly, in my view, points to a fundamental moral lassitude as the basis for economic decline. And I agree there is no financial refuge save, perhaps, physical gold. I am most grateful for your link.

[Phaedrus]

All of my commentary as to the fundamental determinants of market interest rates have been made in the context of the Fed supplying liquidity in balanced fashion as required by the domestic economy, as they have done for decades. Interest rates are, nonetheless, a market price for money and will always reflect supply and demand forces. Should foreign central bank holders of massive U.S. Dollar reserves tire of funding our balance of payments deficits or, worse, decide to reduce their holdings, the U.S. would be faced with a massive oversupply of Dollars which would basically require that the Treasury and the Fed raise interest rates simply to induce holders to continue to hold. That would be only a temporary "fix" however. Ultimately we must right our balance of payments deficit and that would be anything but easy to do in the short run. Severe domestic economic pain would result, I believe.