The Federal Reserve controls interest rates, right? Not so fast. Ben Bernanke and Co. set the Discount Rate, the interest rate that banks pay to the Fed to borrow money short term. But they have a much harder time controlling long-term rates.
Short-term rates are still low (less than 1%), but long-term rates recently have risen dramatically. The 10-year note has gone from 1.7% to 2.25%, and the 30-year Treasuries have gone from 2.7% to 3.37%. That’s a 20% increase in long-term interest rates, and mortgage rates are approaching 4%.
The yield curve (something that Austrian economists watch closely) has suddenly become much more positive. What does it suggest? More inflation down the road! The Fed has engaged in cheap money for so long that it’s finally catching up with higher prices for real estate, food, education, etc.
Supply-side economist George Gilder has just released a revolutionary new book, “Knowledge and Power” that focuses on the creative entrepreneur, capitalist, consumer and investor. For investors, he has a whole chapter on “The Black Swans of Investment.” He rejects the “random walk” or efficient market theory of finance, because he knows that entrepreneurs are always alert to new information and can beat the market if they are ahead of the crowd.
Gilder Wins Leonard E. Read Book Award
I’m happy to announce that George Gilder just has won the Leonard E. Read Book Award for his new book. This annual award is granted by FreedomFest to the “libertarian book of the year” which best advances the principles of liberty.
“Knowledge and Power” is a revolutionary work in the tradition of Hayek’s famous essay “The Use of Knowledge in Society” and Thomas Sowell’s influential book “Knowledge and Decisions.” Gilder makes the argument that decision-makers must reject the deterministic/mechanistic systems of human behavior and build their policies and economic models on the concepts of human creativity, free will and the unexpected. His entire book is built around his thesis that “the freer an economy is, the more this human diversity of knowledge will be manifested… Capitalism is not chiefly an incentive system but an information system.”
The Read Book Award will be presented to Mr. Gilder at this year’s FreedomFest, July 10-13, 2013, at Planet Hollywood in Las Vegas. The award also comes with a gift of a one-ounce American eagle gold coin, valued at approximately $1,500. For more information on the annual conference, which attracts more than 2,000 attendees each year, go to www.freedomfest.com.