⏳ Time Preference | Interest Rates

Time preference and interest rates - Two mechanisms coordinating production in time. To correctly understand business cycles and where economic crises come from, we need to understand these two concepts. Learn Austrian Economics in a fun way!
LINKS
BLOG: econclips.com/interest-rates-...
ANIMATIONS: toin.pl/en/
SUPPORT our project: bit.ly/2fgJR9e
Visit our website: econclips.com/
Like our Facebook page: bit.ly/1XoU4QV
Subscribe to our KZbin channel: bit.ly/1PrEhxG
★★★★★★★★★★★★★★★★★★★★★★★★★★
Music on CC license:
Kevin MacLeod: Home Base Groove - na licencji Creative Commons Attribution (creativecommons.org/licenses/...)
Źródło: incompetech.com/music/royalty-...
Wykonawca: incompetech.com/
Over Time
★★★★★★★★★★★★★★★★★★★★★★★★★★
Econ Clips is an economic blog. Our objetive is teaching economics through easy to watch animated films. We talk about variety of subjects such as economy, finance, money, investing, monetary systems, financial markets, financial institutions, cental banks and so on. With us You can learn how to acquire wealth and make good financial decisions. How to be better at managing your personal finance. How to avoid a Ponzi Scheme and other financial frauds or fall into a credit trap. If You want to know how the economy really works, how to understand and protect yourself from inflation or economic collapse - join us on econclips.com. Learn Austrian Economics in a fun way!

[@alexgoeshollywood]

inflation is theft. a planned economy cannot work. interest rates should be based on the demand, not some dictated by some omniscient wise overlords.

[@gammaraygun6576]

If the central bank didn't set interest rates then the payment system would collapse. 21 trillion dollars in payments are settled each day and so they need financial order-i.e., a bench mark of some kind like an interest rate or the presence of the federal reserve to help settle payments. Without the government being there the payment system would collapse and the greater economy would collapse too. This implies that markets cannot exist without the government, they would collapse.

[@engelsteinberg593]

@@gammaraygun6576 (1) The FED is a private institution to the benefit of his shareholders. (2) There is no need of goverment for the money to work. (3) Even with fractional reserve the Central Bank is unesesary and is a criminal organization.

[@gammaraygun6576]

@@engelsteinberg593 I don't even know what to say to this. It's so far off the mark.

[@austinbyrd1703]

@Wonderful World good. That land, labor, capital should be freed up onto the open market to be properly bidded off. Cheap credit is inherently bad for productivity. It distorts price signals & time preference. Learn economics.

[@mithilmallya2829]

​@@gammaraygun6576 The market precedes the existence of a body like the government, even if the central bankers disappear tomorrow, trades will still take place, economy will still grow. Benchmarking need not necessarily happen at the central banks, it could be (and is being) done through perceived value and rarity of the resource, like Gold. Even Alexander Hamilton, benchmarked the dollar against the gold. paper currency used to be a convenience method in place of gold. The central bankers are required only for the problems that they themselves created, national debt, and nothing else.

[@darafarnsworth2718]

Y'all blow me away with how easy to understand this stuff is!

[@aadityas.9820]

Your explaination is phenomenal

[@tennis5126]

Good explanation. I learned a lot.

[@abhinavitsmebellamy]

Thank you. Really well explained!!

[@neuideas]

Preference is the action you choose to take. Time preference is when you choose to take it. If you choose to do it now, then that's high time preference. If you choose not to do it now, that's lower time preference. Nobody simply has "high time preference" or "low time preference." Your time preference is in relation to a given action, and there are always alternatives you are choosing not to do right now.

[@qiyuzhu3543]

Interesting coincidence - the background music used in this video is identical to the outtro of the KZbin channel Techmoan. The title is "Suspend (Instrumental Version)" and the artist is Jincheng Zhang.

[@DistributistHound]

Japan is currently a good example of low time preference, doesn't matter how much debt they have they can keep going do to massive savings

[@gregorius790]

Props

[@gammaraygun6576]

this stuff is kooky

[@wiscatbijles]

If you understand simple zero-coupon bond mechanics in a free market, you'll understand that it's all just supply and demand. Interest rates then are just an indication of risk. The lower the risk in the market, the more eager lenders give out money to borrowers. This bids up prices for their promise of repayment, i.e. lowering the interest rate. The closer the bid price to face value of the bond, the lower the interest rate. So forget about interest rates. They're just a result of price.

[@mithilmallya2829]

True for private lending like Education, SMBs , personal credit etc. Fed interest rates are cut simply to increase liquidity in the market and cause inflation, which distorts market signals.

[@wiscatbijles]

I think it's risk in stead of time preference that affects supply/demand which affects interest rate.

[@wiscatbijles]

0:53 Not necessarily people want to consume more. Perhaps they want to consume at a better price and think the current price is too high.

[@christopherwilson9358]

How can it be the no central banks means no boom bust cycles if the United States had no central bank from the 1830s until the 1910s and that time period was full of boom bust cycles.

[@gorkemvids4839]

because people create inflation by using depts. Even every bank evaporate today. Someone will ask for dept and spend it like there is no tomorrow. But as long as banks exist, they motivate that bad behaviore.

[@emils7921]

Because the states in the US were still manipulating interestrates combined with federal regulations such as a unified currency.

[@chairwood44]

Actually, the US did have temporary Central banks in that time period. The Fed is actually not the first central bank in the US.

[@justcomments1239]

Christopher Wilson Well, there were 2 Central Banks that existed before the Fed 1791-1811 ‘The First Bank of The United States’ 1816-1833 ‘The Second Bank of The United States’ You’ve also got government paper money issued on numerous occasions, $125 million ‘continentals’ from 1775 to 1779 $415.1 million ‘Greenbacks’ issued from 1862 to 1864. America went off the Gold Standard between 1861 and 1879 In 1863 the National Banking System was established in which New York banks inflated on top of specie and greenbacks, Reserve city banks inflated on top of New York banks, and Country banks inflated on top of those Reserve City Banks. There’s also the mess of bimetallism. In 1792 1 dollar = 371.25 grains of pure silver OR 24.75 grains of pure gold This set a Silver/Gold ratio of 15 to 1 However, the market rate between Silver and Gold changed over the years as different mines opened up around the world So for example in 1805 the market rate between silver/gold was 15.75 to 1 Meaning that silver was undervalued and gold overvalued. Which meant by 1810, via Gresham’s law, only silver coin circulated in the USA, the rest of the money was Bank paper at varying rates of depreciation.

[@LudwigVonFriedman]

Christopher Wilson central economic planning is always the cause of these unrealistic booms.. what we spend must reflect our productivity otherwise we’re just in debt. why do you think housing is so unaffordable these days? Because sellers set the price of their house depending on how easy credit is to get, it’s a self perpetuating process.. so intuitive if you really think about it. A stable money supply will mean way less dumb investment and relatively stable prices. Finally the dumbos calling for minimum wage increases would shut the hell up too 😂

[@DistributistHound]

Governments would try to fix this cycle through monetary and fiscal policy

[@ahmednawab2807]

There is conflict of interest between who run the banks and desirous real growth of economy. Banks love lend to unproductive to individuals for their profits thus 2008 financial crisis.

[@gorkemvids4839]

No one would prefer a full reserve bank in a inflating economy

[@filipe5226]

Of course they would, inflating means devaluating the non-reserve money while the full-reserve one would be unaffected.

[@OrthoHoppean]

Look into the free bankers. Fractional reserve free banking is the ideal

[@iranf.a8238]

What makes the society's time preference change as a whole?

[@mathemagicalmonk2084]

legalised plunder makes it higher as a whole. unstable/unreliable property rights protection why work hard, save for future, if it will be taken away from you

[@teddyj.3198]

Oh boy....

[@gilgabro420]

In other words: a low time preffrence is based and you should have that.

[@dangeroussnek8932]

Change the title to "Socialism debunked in 6 minutes"

[@marunio435]

Lower time preference is normal in Keynes' world. It's Sex Pistols before Sex Pistols.

[@amorfati4096]

a six-minute video debunks the whole Marxian dogma and Keynesian cult.

[@frank-reneschafer5512]

Nothing is further from the truth than this fairy tale. In modern western societies, money is 'printed' -- that is it. The printing press determines the volume of available money for credits. Money that people want to save in terms of retirement funds and insurance capital is sucked up mostly in the stock market. The desire to consume money is directly related to how much people earn, which is directly related to the economic health. Unfortunately, history has shown that lack of economic health does not lead to 'cheaper money' for investments. Beautiful slides promoting nonsense, I would say.

[@iranf.a8238]

Honest question: if the printing press were to determine how much money is available for loans, and that belongs to someone (like the government) who would be able to freely print any amount, that would generate inflation, unless they had a gold standard or some variation, harming economic health right? and btw, what do you mean by economic health? And another question: "The desire to consume money is directly related to how much people earn" well, do you mean the richer you are the more you spend? because from what I researched, the rich tend to save more money proportionally, but I'm not sure that's true. Ps: I'm still learning economics so... yeah, definitely not an expert.

[@Weeki5]

Thoughtful comment with some truth to it. Note that this video talks about how interest rates SHOULD work, not how they DO work today. Comment about the printing press is correct, unfortunately. And yes, retirement funds and such are mostly in the stock market. Why? Because the Fed has been artificially holding interest rates at historic lows for so long that more conservative savings methods are useless. The "desire to consume money" sentence is patently incorrect, however. People desire to consume money because they have endless wants. They did in the stone age when there was virtually no economy and they do now. I would contend that the video is incorrect when it asserts that there would be no boom/bust cycles in an economy of market interest rates. But that said, in that environment we'd be far better off because we wouldn't have the wild economic swings we've had in the last 50 years. They'd be much more moderate and the effects would go away much quicker.

[@poundedlizard]

Yes. And that is inflation. Money printing

[@gammaraygun6576]

@@iranf.a8238 Inflation can be dealt with in many ways. Regulation can deal with inflation. Ending patent monopolies on medical equipment can alleviate medical inflation. Taxes on capital gains can curb stock market bubbles.

[@austinbyrd4164]

@Matthew Applebury capital gains only helps to pop bubbles & discourage proper asset accumulation, utilization, & allocation. Cheap inflationary credit still inevitably creates malinvestments, & the only way to deal with that is liquidation, free up resources, & properly allocating them based on natural emergent price signals. Name a regulation that aids inflations without equally proportionate consequences. Price controls? That just leads to shortages & opportunity costs.