Alasdair Macleod Head of Goldmoney Research on Selling Gold\Silver

Comments

  • GoldNRollGoldNRoll Posts: 198 Bronze ✭✭✭
    @Goldmatters

    Great analysis by Alasdair Macleod as always!

    For some reason, comments are not possible on you latest community post:

    https://community.goldmoney.com/discussion/5215/deeply-negative-nominal-rates-are-on-their-way-by-alasdair-macleod

    Related to his insight on negative interest rates, I have a huge curiosity to know Alasdair's analysis of this article:

    https://bullionstar.com/blogs/jp-koning/the-not-so-crazy-world-of-negative-interest-rates/

    I feel that something is fundamentally fishy about coconuts, true and not true in the same time. Do you think Alasdair would have the time and interest to debunk this one?
  • nienie Posts: 116 Bronze ✭✭✭
    I fully agree with Alasdair. Very good video.
  • GoldmattersGoldmatters Posts: 3,992 Admin
    Hello there @GoldNRoll !

    As I always I appreciate your input :)

    Not sure about the disabled comments lol, I blame Barry Silbert.

    Speaking of Silbert, are you on twitter? Alasdair is interactive there and might answer your question if you ask him directly.
  • GoldNRollGoldNRoll Posts: 198 Bronze ✭✭✭
  • GoldNRollGoldNRoll Posts: 198 Bronze ✭✭✭
    I solved the coconut interest rate puzzle, by reading Ludwig von Mises. I'm sure Alasdair would be proud of me :blush:

    The author was explaining that negative interest rates occur in nature because Robinson, after eating coconuts for today, would gather 3 additional coconuts to put aside for retirement even with knowing that 1 will rot in time. So he would save 3 now, to have 2 later: -33% interest rate.

    My comment on that:

    "In the coconut example we have to consider the marginal utility of each coconut.
    Say Robinson needs 3 coconuts to feed himself one day, and at maximum can gather 6 per day so 3 for today, 3 for when he'll be old.
    Thus, coconuts 1, 2 and 3 have maximal marginal utility being essential for his survival. Coconuts 4, 5 and 6 have much less marginal utility.

    When he'll be old, coconuts 4 and 5 of today will be coconut 1 and 2 that day in the future. The marginal utility of coconuts 4 and 5 today are less than the marginal utility of coconuts 1 and 2 in the future, even discounted by the time-preference of say 40 years.

    To asses natural (original) interest rate, we must compare the use of precisely the same thing, now and in future.

    The question is, would Robinson refrain to eat coconut 1, 2 and 3 today to eat only coconuts 1 and 2 when he'll be old?

    Negative interest rate means Robinson always prefers one coconut with utility u in future, than one coconut with the same utility u now. If this is the case, Robinson would never eat a coconut. He would postpone the act of eating it infinitely because he discounts the present over the future.

    Extrapolate this to money and to the society as a whole. We logically conclude that negative interest rates determine everyone not to spend now, keeping all the money for the future. For this reason, the classical economical science considers the original interest rate always positive. It can be negative, but for a very short time after which the society would cease to exist."
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