This doesn't really translate to "a flow of wealth from working classes and savers to the bankers and the managerial class". Rather, the impact on inequality is that it reduces the purchasing power of those not benefiting from the increased supply of money and credit. As these tend to be the poorest individuals in society, inequality is made worse.
Interest rates are driven by the supply and demand of credit. Supply outstrips demand now.
There are two sides to every transaction; low rates are good for borrowers and bad for lenders. What makes you think the lenders are entitled to a greater return on their savings? Do you think we should force people to borrow at higher rates for this purpose?
>wealth flowing from working classes and savers to the bankers and the managerial class.
The working class in America are debtors and have no savings. Outside of low rates contributing to driving housing prices higher in some communities, how are the working class harmed by lower payments on their debt?
While that's somewhat true, its also largely dictated / controlled / heavily influenced by government. This means the overnight lending rate, U.S. bond rate, etc.
The overnight lending rate is set by the Fed, yes.
Treasuries are sold in the market. Although an initial auction price is set, the rates will fluctuate based on demand for the bonds.
I don't deny the Fed are a major influence on rates, as it's a major component of their mandate now. However, the market can "agree" or "disagree" with those rates and set corresponding rates however they choose.
Yes, it's how the Fed conducts monetary policy. Can you name the last time that US treasuries were under-subscribed? Greek bonds have lower rates to US treasuries; which would you rather own? On a relative basis, how can one claim that US interest rates are "too low"?
Yes, a couple of months ago.
One interest rate is set by the Fed, which serves as a benchmark for other market rates.
But it's a simple question: if I can borrow money at 3%, why would I borrow your money at 7% so you can earn a return? And if someone wants to lend me money at 3%, why is that "artificial"?
>who can print arbitrary amount of money out of thin air
How else should money be created? Should we do pretend mining, like Bitcoin?
Real mining seemed to work okay in past. American GDP grew faster in the 1800s under the gold standard (avg. 4%+) than any time after the creation of the federal reserve.
For the purpose of "creating money", it's a waste of resources.
>American GDP grew faster in the 1800s under the gold standard (avg. 4%+)
I don't want to go back to that period.
Yes... during industrialization. Basically all countries experience rapid GDP growth during their industrialization. Even developing countries today get 4%+ GDP growth. Look at China's GDP growth in the last 50 years for a recent example.
This used to be true, but lately CBs are also buying bonds. That affects their supply/demand balance, which affects their price, which is another way of expressing the interest rate.
Source: spent time trading bonds.
Monetary policy, and the setting of rates, is accomplished by the buying and selling of bonds in the open market by the Fed. They buy bonds and create money, or sell them to destroy it. This affects the amount of money "available" in the system, which affects interest rates.
Of course, this transmission mechanism isn't perfect.
There are plenty of working class people that avoid debt and save money. Why should those people, who are acting responsibly, lose out on savings interest? We should be encouraging people to save, not make it cheaper to go into more debt.