You cannot have a war of words, taxes and regulations on banks, business people, bankers and success and somehow be able to encourage them to borrow to expand by cheapening money and with lower rates.
3
Here's the liberal argument against negative interest rates: "The worry among many experts is that banks, institutional investors and even individuals desperate for higher returns might be seduced into taking foolish risks. "
Of course, the possibility of "foolish risks" is avoided when discussing the government, right ? "It would be far better if European governments used fiscal policy to increase demand by investing in roads, bridges, railroads, ports and other infrastructure." Ever hear of the bridge to nowhere ?
Really, this comes down to who ought to make decisions about where to invest productively. The idea of negative real interest rates persuades lenders to invest in places other than their own central bank. And the idea at least is that private sector investors invest productively because they seek high returns and money is finite. Governments aren't nearly so concerned with returns and money (particularly for those governments who can fund themselves in their own currency) is not so finite.
It's true that fiscal policy might help. But why not consider lowering Europe's sky-high tax rates and regulation and allow the private sector to find value ?
Of course, the possibility of "foolish risks" is avoided when discussing the government, right ? "It would be far better if European governments used fiscal policy to increase demand by investing in roads, bridges, railroads, ports and other infrastructure." Ever hear of the bridge to nowhere ?
Really, this comes down to who ought to make decisions about where to invest productively. The idea of negative real interest rates persuades lenders to invest in places other than their own central bank. And the idea at least is that private sector investors invest productively because they seek high returns and money is finite. Governments aren't nearly so concerned with returns and money (particularly for those governments who can fund themselves in their own currency) is not so finite.
It's true that fiscal policy might help. But why not consider lowering Europe's sky-high tax rates and regulation and allow the private sector to find value ?
2
The poor growth being seen in Europe and the US is due to two main problems; inequality and lack of investment in research and development. Inequality means that the average consumer provides only weak demand, since they are too poor to do otherwise, while wealthy individuals have vast amounts of wealth with no attractive sources for investment due to poor demand. Weak research and development means that paradigm shifting technologies such as cell phones and the internet are no longer being developed. Companies outsourced research and development long ago since it did not generate short term profits, and governments have been steadily decreasing investment in research and development which was mainly driven by war or the threat of war in the past (we can thank the cold war for highways and the internet, for example). Until capitalism releases its stranglehold on the government, I don't see any of these factors changing any time soon, and expect slow growth to be the norm for the rest of my lifetime.
10
The Fed should stop wavering and raise interest rates. Low interest rates are not helping; they are hurting, especially for young people trying to save and seniors who earn nothing on their money,
Treasury Bonds are just as insulting and not worth investing in. The Fed better wake up and take their heads out of the sand.
Treasury Bonds are just as insulting and not worth investing in. The Fed better wake up and take their heads out of the sand.
5
The problem is the low paying jobs of this century, not interest rates.
7
Monetary policy can only address cyclical problems, not structural problems.
8 years after the Crisis, most the problems facing developed nations are structural in nature.
For instance, the JOLT survey shows nearly a record number of unfilled job openings (nearly 6 million).
Low interest rates won't give someone with a high school education a mechanical engineer. There is a skills gap.
We need more affordable access to higher education and vocational training to fill that gap.
We also need immigration reform as the % of prime age workers declines in all developed economies.
Attracting the best and the brightest and all people who want to work hard to share in the American dream creates more jobs than are lost.
Nearly 40% of Fortune 500 companies were founded by first or second generation immigrants, providing 3.6 million jobs and producing $1.7 trillion in revenue.
We are in dire need of infrastructure repair and enhancement and basic research to improve productivity.
The EU also needs structural reforms like fiscal and banking integration, flexible member-state budgets and replacing most sovereign debt with Eurobonds backed by the ECB to address continental needs and emergencies.
Japan has experienced 25 years in a low interest rate environment and only has more debt (230% of GDP) and zero growth since 1992 to show for it.
Printing money to paper over problems is easier, but not more effective when not dealing with a cyclical problem.
8 years after the Crisis, most the problems facing developed nations are structural in nature.
For instance, the JOLT survey shows nearly a record number of unfilled job openings (nearly 6 million).
Low interest rates won't give someone with a high school education a mechanical engineer. There is a skills gap.
We need more affordable access to higher education and vocational training to fill that gap.
We also need immigration reform as the % of prime age workers declines in all developed economies.
Attracting the best and the brightest and all people who want to work hard to share in the American dream creates more jobs than are lost.
Nearly 40% of Fortune 500 companies were founded by first or second generation immigrants, providing 3.6 million jobs and producing $1.7 trillion in revenue.
We are in dire need of infrastructure repair and enhancement and basic research to improve productivity.
The EU also needs structural reforms like fiscal and banking integration, flexible member-state budgets and replacing most sovereign debt with Eurobonds backed by the ECB to address continental needs and emergencies.
Japan has experienced 25 years in a low interest rate environment and only has more debt (230% of GDP) and zero growth since 1992 to show for it.
Printing money to paper over problems is easier, but not more effective when not dealing with a cyclical problem.
9
Demand lags supply for two reasons: (1) overcapacity and (2) concentration of wealth.
We have reached a tipping point where further investment in productive capacity can't be met by demand for goods and services. And yet those goods and services continue to be priced beyond the reach of vast portions of the world's population. Why? Because some of us, the one percent, want to have it all. And the power to have it has been bequeathed upon them.
During the early part of the industrial revolution, before income taxation, vast wealth was accumulated in the hands of very few. This economy was characterized by frequent, cyclical depressions (with a "d"). It should be apparent that when great wealth (and the power that comes with it) is allowed to accumulate intergenerationally, without limits, liberal economies cannot thrive (and systems that very much mimic feudalism evolves).
We have reached a tipping point where further investment in productive capacity can't be met by demand for goods and services. And yet those goods and services continue to be priced beyond the reach of vast portions of the world's population. Why? Because some of us, the one percent, want to have it all. And the power to have it has been bequeathed upon them.
During the early part of the industrial revolution, before income taxation, vast wealth was accumulated in the hands of very few. This economy was characterized by frequent, cyclical depressions (with a "d"). It should be apparent that when great wealth (and the power that comes with it) is allowed to accumulate intergenerationally, without limits, liberal economies cannot thrive (and systems that very much mimic feudalism evolves).
21
Negative short-term interest rates are the result of lack of investment which, in turn, is the result of the falling average rate of profit. In order to raise the interest rates from negative to positive, the system must engender investment for expanded production and turn profitability around from falling to rising.
Infrastructure investment is shunned by capital therefore by its politicians because the rate of profit is too low to worth the trouble. They want to maintain a sole monopoly power over decisions not only of spending policy but also over a guaranteed oligarchical enterprise. Even these two conditions may not be enough for investment, a third one such as a comprehensive nation-wide toll collection system will have to be added before arriving at the foregone conclusions. All boils down to the iron law of maximization of profit without which nothing can be done in such a “free market” system. In order for the government to sweet the deal, the construction capital needs heavily subsidized tax benefits – a sort of negative tax for capital, so to speak.
Provided people has agreed with the capital-regulated government to go along with such a crony-capitalist deal, otherwise, there appears to be a better way out of the depredation, i.e. the radical transformation of the private system into a public one in which the state owns means of production for good.
Capital wants to increase productivity through automation but it will fail as capital is its own true barrier.
Infrastructure investment is shunned by capital therefore by its politicians because the rate of profit is too low to worth the trouble. They want to maintain a sole monopoly power over decisions not only of spending policy but also over a guaranteed oligarchical enterprise. Even these two conditions may not be enough for investment, a third one such as a comprehensive nation-wide toll collection system will have to be added before arriving at the foregone conclusions. All boils down to the iron law of maximization of profit without which nothing can be done in such a “free market” system. In order for the government to sweet the deal, the construction capital needs heavily subsidized tax benefits – a sort of negative tax for capital, so to speak.
Provided people has agreed with the capital-regulated government to go along with such a crony-capitalist deal, otherwise, there appears to be a better way out of the depredation, i.e. the radical transformation of the private system into a public one in which the state owns means of production for good.
Capital wants to increase productivity through automation but it will fail as capital is its own true barrier.
1
It should be well understood that negative real and nominal interest rates are causing unsophisticated investors to indiscriminately chase yield around the globe despite the extraordinary market risk being assumed unwittingly.
ETFs and other funds have made it easy for retail investors to access every corner of the globe despite the inherent risks in purchasing illiquid assets subject to foreign exchange, interest rate, credit and political risk.
As long as central bankers choose to gear up monetary policy to address problems that are structural in nature, they are guilty of feeding an enormous risk bubble.
It is so strikingly similar to the last bubble that it appears some have learned nothing.
Policymakers have been given enormous responsibility.
They should exercise such with great care and foresight that seems not presently apparent.
ETFs and other funds have made it easy for retail investors to access every corner of the globe despite the inherent risks in purchasing illiquid assets subject to foreign exchange, interest rate, credit and political risk.
As long as central bankers choose to gear up monetary policy to address problems that are structural in nature, they are guilty of feeding an enormous risk bubble.
It is so strikingly similar to the last bubble that it appears some have learned nothing.
Policymakers have been given enormous responsibility.
They should exercise such with great care and foresight that seems not presently apparent.
24
Without wanting to define "low" and "high" interest rates, I know one thing.
When my wife and I were in the housing buyers' market in the early and again the late 1970s, mortgage rates were higher than now - in the late, '70s MUCH higher. Financing a home wasn't easy, but we managed.
Fast forward to today. Mortgage rates are at historic lows, but other factors (college debt, a poor job market, stagnant wages) make it no easier for young people to buy a house than it was for us.
On the flip side, bank interest rates are so pathetically low that it forces retirees' savings onto the stock market casino, whether we like it or not. IRA CDs lose actual dollar value, never mind purchasing power, by the time the required minimum distribution is taken. All this while the banks do very well, thank you, with fees and income from loans other than mortgages.
This all adds up to a very good economy for the wealthy while the rest of us are left in the dust.
When my wife and I were in the housing buyers' market in the early and again the late 1970s, mortgage rates were higher than now - in the late, '70s MUCH higher. Financing a home wasn't easy, but we managed.
Fast forward to today. Mortgage rates are at historic lows, but other factors (college debt, a poor job market, stagnant wages) make it no easier for young people to buy a house than it was for us.
On the flip side, bank interest rates are so pathetically low that it forces retirees' savings onto the stock market casino, whether we like it or not. IRA CDs lose actual dollar value, never mind purchasing power, by the time the required minimum distribution is taken. All this while the banks do very well, thank you, with fees and income from loans other than mortgages.
This all adds up to a very good economy for the wealthy while the rest of us are left in the dust.
18
So what do you *recommend*, oh Times solons?
Easy to point to things that don't work, but how about pointing to some things that work--and will work for the USA? And not for just Big Business and the 1%ers!
Easy to point to things that don't work, but how about pointing to some things that work--and will work for the USA? And not for just Big Business and the 1%ers!
6
i had written earlier, but felt the need to post a few additional comments:
1. The Times had a prominent article the other day about the greatly increased cost of life insurance. The main reason: zero interest rate returns. Similarly, health, auto and home insurers, obligated to keep substantial reserves in liquid investments that now have virtually no return, have raised premiums far beyond the stated rate of inflation. Double digit increases are now the norm. Our economy is now mainly service-based. These services mentioned above, along with law, finance, medicine, etc. have seen marked increases in fees as well. The idea that the Fed keeps interest rates near zero due to no inflation is a fallacy.
2. Large banks now borrow for free, yet their credit card arms easily charge 20% interest on balances. How does the Fed countenance that? Hefty interest is still charged on most student loans, and the only growth in consumer credit of late has been in the sub-prime category for those least able to afford the payments, but needed to borrow in order to survive.
3. The Fed also doesn't want to "advertise" that in suppressing rates, it also keeps the interest payments down on the massive federal debt. Sixteen years ago a federal debt of $6 trillion was financed at a rate of some 6-7% per year for interest payments of some $390 billion a year. Today's $18 trillion debt is financed at an average of less than 1.5%, meaning the interest payments are less than 16 years ago.
1. The Times had a prominent article the other day about the greatly increased cost of life insurance. The main reason: zero interest rate returns. Similarly, health, auto and home insurers, obligated to keep substantial reserves in liquid investments that now have virtually no return, have raised premiums far beyond the stated rate of inflation. Double digit increases are now the norm. Our economy is now mainly service-based. These services mentioned above, along with law, finance, medicine, etc. have seen marked increases in fees as well. The idea that the Fed keeps interest rates near zero due to no inflation is a fallacy.
2. Large banks now borrow for free, yet their credit card arms easily charge 20% interest on balances. How does the Fed countenance that? Hefty interest is still charged on most student loans, and the only growth in consumer credit of late has been in the sub-prime category for those least able to afford the payments, but needed to borrow in order to survive.
3. The Fed also doesn't want to "advertise" that in suppressing rates, it also keeps the interest payments down on the massive federal debt. Sixteen years ago a federal debt of $6 trillion was financed at a rate of some 6-7% per year for interest payments of some $390 billion a year. Today's $18 trillion debt is financed at an average of less than 1.5%, meaning the interest payments are less than 16 years ago.
11
"Companies are less likely to borrow for new investments when demand for their goods and services is not increasing — even if the cost of borrowing is cheaper than ever."
Why should companies borrow at all - they are loaded with cash. They see no reason to expand their operations, which are doing just fine, thank you.
The problem is that the population in general is not doing well, with government services declining, interest on savings at zero, and nothing happening by way of improving life in general, mostly because companies see no need to do that.
Why should companies borrow at all - they are loaded with cash. They see no reason to expand their operations, which are doing just fine, thank you.
The problem is that the population in general is not doing well, with government services declining, interest on savings at zero, and nothing happening by way of improving life in general, mostly because companies see no need to do that.
4
With aging and shrinking native populations led by Roman Catholic Italy the negative "interest" in foreign immigration is the most serious looming socioeconomic political educational demographic disaster facing Europe.
1
The US population is growing, so our economy needs to grow just to maintain our current standard of living. But the EU is close to Zero Population Growth, and Japan is negative. So why is 1.6% economic growth in the EU such a disaster? This seems to imply a requirement that we all (or at least the 1%) keep getting richer and richer. That requirement escapes me.
There's a level of wealth, which is well below that of Warren Buffet or David H. Koch, at which you and your extended family can no longer physically consume that wealth in the foreseeable future. Yes you can go blow it at the NYSE casino, and I have no right to impose my values on other people, but poring over your brokerage statement just doesn't seem like consuming something of value to me. Competing with that is learning something new about biology or astronomy or history, taking a walk in the woods or watching a sunset, exploring new musical or dramatic genres you haven't encountered before. Or you can go check your Schwab account again.
Maybe somebody can explain to me what the problem is that this editorial addresses.
There's a level of wealth, which is well below that of Warren Buffet or David H. Koch, at which you and your extended family can no longer physically consume that wealth in the foreseeable future. Yes you can go blow it at the NYSE casino, and I have no right to impose my values on other people, but poring over your brokerage statement just doesn't seem like consuming something of value to me. Competing with that is learning something new about biology or astronomy or history, taking a walk in the woods or watching a sunset, exploring new musical or dramatic genres you haven't encountered before. Or you can go check your Schwab account again.
Maybe somebody can explain to me what the problem is that this editorial addresses.
4
the negative impact of negative interest rates on retirement savings is yet another example of unintended consequences arising out of a government policy. the lack of a safe way to invest retirement savings (this is about savings that are actually being used to fund retirement) at a reasonable interest rate of 3 percent means that retirees are forced to invest in riskier stocks and bonds to fund retirement. this means they are less likely to spend money. the negative impact on consumption is one of the main problems with European and American economies. thus the banks are making the problem they are trying to solve worse.
7
"Government spending would create jobs and stimulate economic activity, and would not cost much."
It is a dangerous thing to rely on central government to create growth through spending. Central governments spend inefficiently and favor special interests. And spending surges never seem to produce the intended results, and the results are always short term. Isn't this what Japan has been doing the last two decades? And isn't that what we just tried with the stimulus plan.
Plus, what happens once the spending surge ends? You get caught in a trap of either withdrawing the spending and risking harming the economy, or continuing the elevated spending, which results in continued high deficits. In other words, increased deficit spending isn't sustainable. And if you try to actually pay for it (with taxes), you counteract whatever stimulus you are trying to create.
Lastly, the money is cheap argument doesn't work if you don't have a plan to pay off the debt. It works great for municipal bonds that cities have to pay back. But the big central governments will never pay back their loans, and they will eventually have to issue bonds at higher rates just to sustain their existing debt burdens.
It is a dangerous thing to rely on central government to create growth through spending. Central governments spend inefficiently and favor special interests. And spending surges never seem to produce the intended results, and the results are always short term. Isn't this what Japan has been doing the last two decades? And isn't that what we just tried with the stimulus plan.
Plus, what happens once the spending surge ends? You get caught in a trap of either withdrawing the spending and risking harming the economy, or continuing the elevated spending, which results in continued high deficits. In other words, increased deficit spending isn't sustainable. And if you try to actually pay for it (with taxes), you counteract whatever stimulus you are trying to create.
Lastly, the money is cheap argument doesn't work if you don't have a plan to pay off the debt. It works great for municipal bonds that cities have to pay back. But the big central governments will never pay back their loans, and they will eventually have to issue bonds at higher rates just to sustain their existing debt burdens.
6
The problem in Europe, as in the US, is mostly political: when a government can GET PAID to borrow money to spend on infrastructure and other services for the common good, why would they refuse to do that? The answer is simple: because they operate on a purely emotional level - the old "Puritan Ethic". It has to cause pain before you can get into heaven. By that logic, the Greeks should be flooding into heaven. Could their pain be any greater? And the guilt-ridden Germans, whose standard of living is higher than anyone else's, should be preparing for very warm weather (much warmer even than global warming has brought them).
3
A fundamental problem with the EU is that it is a monetary sovereign responsible for monetary policy, but not a fiscal sovereign responsible for fiscal policy.
The EU should be creating money and spending it. Either by literally creating it and handing it to the EU, by 'expanding their balance sheet' by creating money to buy bonds from the EU, or by borrowing Euro from investors for the EU to spend. However they get the money, they should spend it by paying poor people to do something productive - pick up litter if that's what it comes to, but give people a job and pay them a wage. They'll spend those wages, creating demand for private goods and services.
But the EU doesn't really spend money, so it can't do this. All it could do is to lend money to the constituent states, who are like our constituent states in the U.S. And those constituent states are in no mood to borrow money, because they are in no position to pay back the money. The best the EU could do is literally give the money to the constituent states - block grants for employment programs - but the EU lacks the political courage to do so.
As someone would say: SAD!!
The EU should be creating money and spending it. Either by literally creating it and handing it to the EU, by 'expanding their balance sheet' by creating money to buy bonds from the EU, or by borrowing Euro from investors for the EU to spend. However they get the money, they should spend it by paying poor people to do something productive - pick up litter if that's what it comes to, but give people a job and pay them a wage. They'll spend those wages, creating demand for private goods and services.
But the EU doesn't really spend money, so it can't do this. All it could do is to lend money to the constituent states, who are like our constituent states in the U.S. And those constituent states are in no mood to borrow money, because they are in no position to pay back the money. The best the EU could do is literally give the money to the constituent states - block grants for employment programs - but the EU lacks the political courage to do so.
As someone would say: SAD!!
3
Japan, Europe and to a lesser degree, the US are in a liquidity trap. The people who have money to invest are not investing it where it can create real growth. We've seen this before during the Great Depression and on and off in Japan for the last two decades. Lowering interest rates will not stimulate investment or growth. The only stimulus that will work in these circumstances is government spending. And while Europe's infrastructure might be in better shape than ours, we need massive expenditure on roads, bridges, rails, ports, canals and even airports. We have a lot of room for investment in infrastructure and therefor a lot of room for new economic growth. Putting off the expenditures when they were needed, 20 or more years ago, contributed to our slow growth.
5
If helicopter money helped the actual economy, ie the production of goods and services we want, we'd have known when in 1661 Sweden first tried it. If the infrastructure spending promoted in this editorial worked Japan would be flying high. (Let the editorial writers tell us why it didn't work in Japan but will here.) No, what needs to be done is to give an open field to the people and companies for innovation and production of what people really want and need in their lives.
Now, I'll let the NYT choke on this because it is so Conservative, what needs to be done is to lower tax rates (tax revenues will go up) and lower regulations to get people's energy back up.
(It is easy to see the political part of regulation when in NYC and other places, a service that people are rushing to, UBERISM, is being stifled by government. That is crazy.)
Heed not the voices of government trying to do more. Free the people up and prosperity for all will follow as it always has.
Now, I'll let the NYT choke on this because it is so Conservative, what needs to be done is to lower tax rates (tax revenues will go up) and lower regulations to get people's energy back up.
(It is easy to see the political part of regulation when in NYC and other places, a service that people are rushing to, UBERISM, is being stifled by government. That is crazy.)
Heed not the voices of government trying to do more. Free the people up and prosperity for all will follow as it always has.
4
If massive infrastructure spending works so well, why has that policy been such a disaster in Japan which has been using that approach for almost 30 years?
Their economy remained stagnant while government debt as share of GDP went from very low levels to over 200% the highest in the developed world.
If the infrastructure spending approach works so well as a cure for economic stagnation, why didn't the editorial cite some successes in industrialized countries when this has been tried?
Their economy remained stagnant while government debt as share of GDP went from very low levels to over 200% the highest in the developed world.
If the infrastructure spending approach works so well as a cure for economic stagnation, why didn't the editorial cite some successes in industrialized countries when this has been tried?
8
"..why didn't the editorial cite some successes?"
First, because they are statists. Secondly, because they promote Democrats and Liberals (see 'First'). And thirdly, because they are intellectually dishonest.
The end result for the NYT is that their stock is down 75% and their newsroom is emptying out. How can they be right on overall economics when they can't manage their own business? Listening to them is a fool's mission.
First, because they are statists. Secondly, because they promote Democrats and Liberals (see 'First'). And thirdly, because they are intellectually dishonest.
The end result for the NYT is that their stock is down 75% and their newsroom is emptying out. How can they be right on overall economics when they can't manage their own business? Listening to them is a fool's mission.
7
There is an old saying that GDP measures nothing so well as it measures the rate at which we are destroying our natural environment. We must achieve equilibrium one day - - - or we all die. But we are a relatively new nation, still trapped in in the zeitgeist of the nineteenth century when they made up expansion-justifying notions like "rain follows the plow", only to cause the Dust Bowl.
We need an equilibrium model and we need to begin the transition to it now. Why should I care how fast the economy is growing if I am secure and happy? But the transition will be complex and will require adroit leadership. Washington and the statehouses are not up to the task so that's where we have to begin.
We need an equilibrium model and we need to begin the transition to it now. Why should I care how fast the economy is growing if I am secure and happy? But the transition will be complex and will require adroit leadership. Washington and the statehouses are not up to the task so that's where we have to begin.
8
Good wages drive demand. The poor do not warehouse money, they spend it on stuff. The middle class, though they do save some money for retirement for example, also don't warehouse money. They put it to use by purchasing. The very wealthy and large wealthy corporations warehouse money. They stash it away where it does nothing for anyone including the economy.
You want to stimulate the economy, hire people and pay good wages.
You want to stimulate the economy, hire people and pay good wages.
42
The culprit of course was the idea that somehow in an economic down turn austerity would cause the EUs economy to grow. What they ended up with was a grinding recession the changed the face of the EU. The EUs obsession with inflation has brought them to negative interest rates.
1
Left out:
Zero interest rates (Fed) and worse, negative ones (ECB) have catastrophic consequences for retirement plans, Federal, State and private.
The real rate of the 5 yr treasure bond is -0.21% (minus) , on the 10 yr bond it is +0.05%. And yet, by law, Social Security must invest in treasury bonds.
For more read
http://www.nytimes.com/2016/08/14/business/why-some-life-insurance-premi...
But the central banks, having moved into zero interest rates by creating unprecedented amounts of money find it difficult to escape.
Plus Kruman argues it shouldn't. The Fed "shouldn't be raising rates until it sees the whites of inflation's eyes"
Zero interest rates (Fed) and worse, negative ones (ECB) have catastrophic consequences for retirement plans, Federal, State and private.
The real rate of the 5 yr treasure bond is -0.21% (minus) , on the 10 yr bond it is +0.05%. And yet, by law, Social Security must invest in treasury bonds.
For more read
http://www.nytimes.com/2016/08/14/business/why-some-life-insurance-premi...
But the central banks, having moved into zero interest rates by creating unprecedented amounts of money find it difficult to escape.
Plus Kruman argues it shouldn't. The Fed "shouldn't be raising rates until it sees the whites of inflation's eyes"
6
Krugman is wrong and the reason is quite simple. Raising interest rates after a long period of stagnation will cause money to move across markets in massive amounts. Monetary velocity will skyrocket and inflation will take off to the *upside*. Traditional economic models predict precisely the reverse, which is why traditional economists are getting it wrong. Wait and see...my theory is definitely going to get tested, at some point.
6
@taopraxis: Note, by way of example, how gold reacted when the Fed raised by a tiny quarter point...
5
The markets are like a big balloon and central bank money is like helium. Pump in more helium, the balloon gets bigger and rises higher and higher. Of course, balloons have limits and the sky ends at space and markets have limits, as well, central bank denial notwithstanding.
I used to call zero the hard wall of objective mathematical reality because five thousand years of financial market history had gone by without negative interest rates. So, was I wrong about zero?
Not at all...
Zero is the hard wall of objective mathematical *reality*.
Negative rates plainly prove that markets do not reflect reality. There is no such thing as negative yield in the bond universe. Negative yields blow up traditional financial models.
The banks are making this stuff up as they go along. The world has left the free market system and entered a period comparable to the tulipomania of historical financial infamy.
Bond terminals have become video poker machines run by a casino.
At some point, the banks are going to get hoisted on their own petard.
I say no bailouts next time.
What do you say?
Stop them or they'll do it again and again...
I used to call zero the hard wall of objective mathematical reality because five thousand years of financial market history had gone by without negative interest rates. So, was I wrong about zero?
Not at all...
Zero is the hard wall of objective mathematical *reality*.
Negative rates plainly prove that markets do not reflect reality. There is no such thing as negative yield in the bond universe. Negative yields blow up traditional financial models.
The banks are making this stuff up as they go along. The world has left the free market system and entered a period comparable to the tulipomania of historical financial infamy.
Bond terminals have become video poker machines run by a casino.
At some point, the banks are going to get hoisted on their own petard.
I say no bailouts next time.
What do you say?
Stop them or they'll do it again and again...
10
Along with all the (appropriate, insightful, relevant) comments on this article, I want to comment on its brilliant, accompanying illustration, which is delightfully detailed yet minimal, highly narrative yet original. And so clever that it honors talent itself.
4
Predicating economic policy upon the unending continuance of market growth factors such as consumer demand, population growth, and increasing industrial activity is unsustainable, and only serves those who rule the financial markets.
This growth paradigm that measures the health of economies should be overturned. The true measure of economic health should be how low the poverty rate is, how well people are employed, and how most people have their needs met -- and measures of quality of life.
Rather than GDP growth, financial stability and security should be the goal of national economies.
This growth paradigm that measures the health of economies should be overturned. The true measure of economic health should be how low the poverty rate is, how well people are employed, and how most people have their needs met -- and measures of quality of life.
Rather than GDP growth, financial stability and security should be the goal of national economies.
8
What's described here is the opposite of a virtuous cycle; more like a tightening noose that is slowly strangling the global economy. This is the inescapable result of decades-long economic policy aimed at "unleashing capital" in the aftermath of the Soviet Union's collapse. What's been lost is the yang of consumer demand, driven in post-agrarian economies by well paid labor, to the yin of investment in productive capacity. We're seeing a most graphic illustration of the mutual dependence of business and labor. The solution to the economic constriction described in this editorial is to get both feet into modern industrial economies.
Free trade and globalization have masked a regression toward the most primitive labor practices of industrialization.
Free trade and globalization have masked a regression toward the most primitive labor practices of industrialization.
3
This is what happens when governments mismanage their fiscal affairs and focus on regulatory policies instead of economic growth, central bankers are forced to do something to stimulate the economy. It is total irresponsibility of the socialistic and socialistic leaning politicians to try to buy votes through debt fueled government financing. It's economic suicide folks!
Central Bankers are conservative by nature, but more importantly limited by economic reality. They also are not politicians and by nature aren't good at blaming others for economic stagnation. Plus their political bosses will replace the central bankers, if the central bankers criticize their domestic politicians. It is a crazy downward spiral that just keeps government adding debt on top of debt.
So here is a suggestion, instead of wasting money on huge international conferences to solve global warming, why don't we have a huge international conference of how to get global growth going again. This is necessary to bring the issue to the economically naive media so at least they message their audience on what is going on with global growth and maybe options to solve our world wide economic stagnation problems.
Central Bankers are conservative by nature, but more importantly limited by economic reality. They also are not politicians and by nature aren't good at blaming others for economic stagnation. Plus their political bosses will replace the central bankers, if the central bankers criticize their domestic politicians. It is a crazy downward spiral that just keeps government adding debt on top of debt.
So here is a suggestion, instead of wasting money on huge international conferences to solve global warming, why don't we have a huge international conference of how to get global growth going again. This is necessary to bring the issue to the economically naive media so at least they message their audience on what is going on with global growth and maybe options to solve our world wide economic stagnation problems.
3
It seems you forgot already. It was the total LACK of regulation and SEC/government oversight that created the disasterous financial meltdown of 2008 and other countries just verified the proof of that. If you bothered to look, countries such as Canada even during period, continued to have the proper banking regulations in place that enabled them to continue making profits and even invest elsewhere, even America.
Check it out, TD Bank, a Canadian bank is now the 7th largest bank, IN THE U.S..
Check it out, TD Bank, a Canadian bank is now the 7th largest bank, IN THE U.S..
2
The economy, sluggish at best for lack of use (and infra-structure, in disrepair and in urgent need for improvement or replacement, a logical next step for investment), is 'killing' us. Draghi and some other wise men would do well in talking less...and doing more, 'walk the talk', so to speak. In the U.S., real estate may be entering a bubble again if we allow inflation in its prices to prosper, a rise in the stock market without much substance to support it. As there is talk of raising the minimum hourly pay to a living wage, it may stimulate consumption and raise demand where none exists today, even with a relatively low jobless status (as low paying jobs are not the answer either). How about investing in a much wider reach for education, so we can match the competitiveness a globalized economy demands. Having 'dormant' money stashed away, while urgent social needs go unfulfilled, is akin to a crime committed in the name of justice.
2
Less emphasis should be placed on GDP growth. It doesn't take into account whether that GDP growth is trickling down. Instead, take median household income and multiply it by the number of households.
2
"Government spending would create jobs and stimulate economic activity, and would not cost much. Bond investors are willing to lend money to the German government for 30 years at a rate of just 0.38 percent; in France, the rate is only 0.878 percent."
The Times editors act like these rates are FIXED, like the Central Banks' rates. They're not, meaning it highly likely that markets would ANTICIPATE future inflation and raise market rates, sharply, in advance of inflationary spending. "...are willing..." is not the same as "will be willing."The Times' perscription MIGHT work, but please...don't make it sound like a no-brainer!
The Times editors act like these rates are FIXED, like the Central Banks' rates. They're not, meaning it highly likely that markets would ANTICIPATE future inflation and raise market rates, sharply, in advance of inflationary spending. "...are willing..." is not the same as "will be willing."The Times' perscription MIGHT work, but please...don't make it sound like a no-brainer!
3
The economy grows when people (99%) have money to buy "stuff". Higher wages and lower taxes on lower income worker coupled with tariffs on the "stuff". If you make it here with American workers you'll make fore money than if you make it elsewhere. If people have livable income they will buy, and businesses will have customers and profits.
Also the "unearned income" needs to be taxed as regular income for starts.
Also the "unearned income" needs to be taxed as regular income for starts.
4
Even if people had money to buy "stuff", why should they? They don't need "stuff". They need food, housing, health care and education for their kids. Not "stuff".
"Companies are less likely to borrow for new investments when demand for their goods and services is not increasing — even if the cost of borrowing is cheaper than ever."
Central banks once again find themselves 'pushing on a string', a metaphor from the Great Depression when austerity in the aftermath of a financial panic led them to this same sorry place. Fiscal austerity was the mistake in both cases, and low interest rates were and are not enough to compensate.
One toxic effect of continuing ultra low rates is the negative effect on pension funds, endowments and life insurers. These entities assume a rate of return that compounded over time will fund their long term commitments. The damage that low rates now wreak on these models is enormous. Some have abandoned the old maturity matching model and are now speculating in non investment grade debt and equities. But even that is not enough. Pension plans are already dropping like flies, and mainstream life insurers are already reporting terrible results. It's already happening, and I don't understand why no one in power is talking about it.
Central banks once again find themselves 'pushing on a string', a metaphor from the Great Depression when austerity in the aftermath of a financial panic led them to this same sorry place. Fiscal austerity was the mistake in both cases, and low interest rates were and are not enough to compensate.
One toxic effect of continuing ultra low rates is the negative effect on pension funds, endowments and life insurers. These entities assume a rate of return that compounded over time will fund their long term commitments. The damage that low rates now wreak on these models is enormous. Some have abandoned the old maturity matching model and are now speculating in non investment grade debt and equities. But even that is not enough. Pension plans are already dropping like flies, and mainstream life insurers are already reporting terrible results. It's already happening, and I don't understand why no one in power is talking about it.
4
The advocates of variable time value of money have no benchmark whatsoever to stand upon.
The root value of fiat currencies (and all currencies exist by fiat) rests on the capacity of money to make money when deposited in banks.
The root value of fiat currencies (and all currencies exist by fiat) rests on the capacity of money to make money when deposited in banks.
1
Growth increases can only be had through expanded public investment.
1. If rates are zero or less to save for retirement I must curb my consumption and hoard liquidity (not spending=no growth).
2. If rates provide positive returns some of my retirement will come from interest payments. These interest payments ultimately find their way into consumer prices (for private debt) and taxes (for public debt). That is, positive interest rates increase price levels and in doing so restrict growth.
3. Since the propensity to consume is the opposite of the propensity to save the only way to generate income is through consumption. If people have maxed out their private consumption public consumption is all that is left.
4. Germany could very easily expand public consumption by considering Greeks and Italians and Portuguese etc. to be German-enough to merit public works. I.e. expand the European economy by financing infrastructure outside of Germany. It would be no different than NY or CA residents contributing to infrastructure in AR or LA.
Negative savings rates are not THAT unprecedented when you factor in all the times that price levels have exceeded returns on bank deposits or other financial instruments.
1. If rates are zero or less to save for retirement I must curb my consumption and hoard liquidity (not spending=no growth).
2. If rates provide positive returns some of my retirement will come from interest payments. These interest payments ultimately find their way into consumer prices (for private debt) and taxes (for public debt). That is, positive interest rates increase price levels and in doing so restrict growth.
3. Since the propensity to consume is the opposite of the propensity to save the only way to generate income is through consumption. If people have maxed out their private consumption public consumption is all that is left.
4. Germany could very easily expand public consumption by considering Greeks and Italians and Portuguese etc. to be German-enough to merit public works. I.e. expand the European economy by financing infrastructure outside of Germany. It would be no different than NY or CA residents contributing to infrastructure in AR or LA.
Negative savings rates are not THAT unprecedented when you factor in all the times that price levels have exceeded returns on bank deposits or other financial instruments.
5
Neither negative interest rates nor Japan's attempt to spend its way out of recession have had the desired effect. Perhaps Gordon is right and the century of growth we saw was the result of a unique series of circumstances? We certainly need infrastructural spending, but we need it for its own sake, not simply to spur economic growth. What policies should we adopt for an era of slow growth?
4
With no central system for finance, fiscal policy is set by each country for itself. In the US it is the stupid right wingers who hamstring the country's fiscal policy. Wake up people-vote Democratic.
2
Negative interest rates mean that the banks do not have a clue about how to solve Europe's economic malaise. The first thing would be to dissolve the Eurozone.
1
DTOM: And Brazil? Russia?
1
QE was always, and ever, a band aid, meant to be short term. The only real solution to the economic stagnation is to undo the supply-side - "trickle down" - policies that have been the cause of this for decades. Period.
First, launch the projects that are desperately needed to fix our crumbling infrastructure and to create decent jobs. Next, tax policy must be changed from rewarding short term profit taking, and reward long term investment in America. Next, rewrite/cancel trade deals that reward moving jobs offshore, and allowing the subsequent products to be imported back in without penalty. If countries want to trade with us - and gain access to the largest, most affluent consumer base in the world - then they have to pay the price of admission, which is a level playing field for workers. Next, we need to ignore the hysteria about the "Horrible, terrible, awful, no good Deficit", and invest more in the creation of projects and research that will kick start new industries, a la the Space Program.
Our economy has been held hostage for almost 40 years by "conservative" ideology that only serves the interests of the 1%, at the expense of the 99%. Until we break free of that captivity, we'll continue to subsidize the uber-wealthy and powerful, and be at risk for yet another crash, perhaps the final one.
First, launch the projects that are desperately needed to fix our crumbling infrastructure and to create decent jobs. Next, tax policy must be changed from rewarding short term profit taking, and reward long term investment in America. Next, rewrite/cancel trade deals that reward moving jobs offshore, and allowing the subsequent products to be imported back in without penalty. If countries want to trade with us - and gain access to the largest, most affluent consumer base in the world - then they have to pay the price of admission, which is a level playing field for workers. Next, we need to ignore the hysteria about the "Horrible, terrible, awful, no good Deficit", and invest more in the creation of projects and research that will kick start new industries, a la the Space Program.
Our economy has been held hostage for almost 40 years by "conservative" ideology that only serves the interests of the 1%, at the expense of the 99%. Until we break free of that captivity, we'll continue to subsidize the uber-wealthy and powerful, and be at risk for yet another crash, perhaps the final one.
6
I agree with you except on the part of most affluent. We are not that wealthy.
One seeming "law of economics" that baffles me is the belief that there must always be growth for an economy to be healthy. Why is this? So far as I can tell, the Weatern world isn't in dire straights or in a situation with pent-up demand, or in a situation where technology is driving fundamental change. Maybe for now, we've hit a natural plateau and prices/wages/ inflation are low because that is in fact the equilibrium? For wages at the unskilled end, clearly mass immigration has had a mightily depressive effect. Europe went centuries in the Middle Ages with low growth, then took off diring the age of discovery. It took the tech boom of Ww2 and the Cold War to fuel the boom that has just ended. I see nothing amazing on the horizon. Maybe we are finally back to normalcy?
3
I"m not an economist, but as I understand it, there has to be growth or the debt can't be serviced. Capitalism has devolved into Grow or Die.
3
As long as the world's population grows we need to grow to manage a growing population.
One thing that the ECB's policy does, as does the policy of the FRB, is conduct a war on savers. What do these fools rates do for retirees and others dependent on income from savings? They certainly insure such people will spend less, not more. Let's stop pretending zero rates (+ or -) actually drive growth. Time has long since passed for the central bankers to end this gross falacy and end their war on savers.
2
It was almost 40 years ago that America put a man in the oval office that was willing to tell us the truth. Since that time thanks to the MSM, liberals and conservatives we have grown our economy at the expense as Paul Krugman put it of our wisdom and courage.
Negative interest is uncharted water, it is a price Europe is willing to pay to rescue their social democracy from capitalism run amok.
America's economy has grown like no other western economy for fifty years and in 2016 America's democracy is teetering on the brink. Some of America's cities have areas that resemble war zones. Twenty three people were shot in Chicago (my former residence) on Saturday night and it wasn't even news.
Yes we must grow the economy the division between the many Americas is not wide enough. We need Ronald Reagan's America where we have two hundred dollar jars of Jelly Bellies on our desk and everybody else can just eat s--t.
Negative interest is uncharted water, it is a price Europe is willing to pay to rescue their social democracy from capitalism run amok.
America's economy has grown like no other western economy for fifty years and in 2016 America's democracy is teetering on the brink. Some of America's cities have areas that resemble war zones. Twenty three people were shot in Chicago (my former residence) on Saturday night and it wasn't even news.
Yes we must grow the economy the division between the many Americas is not wide enough. We need Ronald Reagan's America where we have two hundred dollar jars of Jelly Bellies on our desk and everybody else can just eat s--t.
6
Maybe we need to find a new source of expert advice on these economic matters. Rather than cozying up to the economic school of the month - Keynes, Marx, Scrooge McDuck - why not look for another academic discipline to provide useless and harmful expert direction?
Borrow the dart board from the local pub and just throw darts at the problem. The results couldn't be any worse than the current system.
Better yet, trade in the current pseudo-science for another pseudo-science. Let's give astrology another shot.
Borrow the dart board from the local pub and just throw darts at the problem. The results couldn't be any worse than the current system.
Better yet, trade in the current pseudo-science for another pseudo-science. Let's give astrology another shot.
9
None of this is magic. Money is just currency. And if people or entities won't spend then there must be ways to increase demand. Clearly supply is not the issue. But your suggestions I'm sure would be very helpful to all the rest of us if we only knew them.
1
I've yet to see much in the way of solid, calibrated, quantitative models of the economy. Such would exist and be reliable if economics were in fact a science. But, it seems to be mostly pseudo-science with lots of hand waving and not nearly enough rigor. And they give out Nobel prizes in economics?
The problem with infrastructure spending as stimulus in Europe is the Maastrict criteria, which are the governing criteria that all countries using the euro sign up to, which is no more than a 3% annual deficit and a target 60% debt to GDP ratio.
I would defend these rules to the end (look at Greece for what happens when this is loosened), BUT i think we are now at the point where we have got to separate out current and capital government expenditure. The targets should be looser for infrastructure stimulus spending, and remain tight for current everyday spending (public sector salaries and pensions).
I would defend these rules to the end (look at Greece for what happens when this is loosened), BUT i think we are now at the point where we have got to separate out current and capital government expenditure. The targets should be looser for infrastructure stimulus spending, and remain tight for current everyday spending (public sector salaries and pensions).
1
It tells me two things:
1. Europe needs to take a lesson from Uk K., where the BOE and Exchequer announced a multi-pronged Package, including both Monetary and Fiscal tools. When the basic lending rates are near or below zero, monetary stimulus loses its effecter. But government spending still works.
2. The stock market has become unhinged from reality. Central banks around the world have set their base-lending rate at all-time lows, telling us that the global economy is quite weak, and apparently not improving much. This rates just bring deposit rates and bond yields down to near all-time lows, as well. Accordingly, investors are shunning the traditional stock-bond balance in their portfolio, and over-indulging in stocks. Thus, the current stock rally seems to becoming just another bubble to be dealt with.
https://thetruthoncommonsense.com
1. Europe needs to take a lesson from Uk K., where the BOE and Exchequer announced a multi-pronged Package, including both Monetary and Fiscal tools. When the basic lending rates are near or below zero, monetary stimulus loses its effecter. But government spending still works.
2. The stock market has become unhinged from reality. Central banks around the world have set their base-lending rate at all-time lows, telling us that the global economy is quite weak, and apparently not improving much. This rates just bring deposit rates and bond yields down to near all-time lows, as well. Accordingly, investors are shunning the traditional stock-bond balance in their portfolio, and over-indulging in stocks. Thus, the current stock rally seems to becoming just another bubble to be dealt with.
https://thetruthoncommonsense.com
1
The wealth of the wealthy in stocks, real estate and bonds all benefit immensely from the lowering of interest rates. The continued "stimulus" over the past decades has created a gargantuan asset bubble. Without growth, the only way to continue this asset appreciation is the further lowering of already low interest rates. How low can we go before it pops?
We need a different solution. Let's create growth with; i) tax cuts and credits for the classes that would spend the money, and ii) jobs through investments in the infrastructure and future technologies. Fund it by eliminating loopholes exploited by corporations and the wealthy, who pay absurdly low effective tax rates.
Done.
We need a different solution. Let's create growth with; i) tax cuts and credits for the classes that would spend the money, and ii) jobs through investments in the infrastructure and future technologies. Fund it by eliminating loopholes exploited by corporations and the wealthy, who pay absurdly low effective tax rates.
Done.
2
Neither Central Banks nor Governments "create" anything. Central Banks change the timing of interest rate dependent investment and spending but not the total. Governments merely move spending from one citizen to another so "infrastructure" takes the place of spending at the mall. This fraud has been perpetuated by every economist ever alive.
0% rates have an opposite effect on investors. Retirees subsidize GM- just great.
The sum total of all these effects is to reduce activity because of fear and confusion present in every mind that is still awake.
0% rates have an opposite effect on investors. Retirees subsidize GM- just great.
The sum total of all these effects is to reduce activity because of fear and confusion present in every mind that is still awake.
2
NEGATIVE On Negative Interest Rates. European banks have not achieved their goal of increasing investment in business rather than stashing money in bank accounts. I find it troubling that Europe has chosen to shell games with monetary policy rather than investing in infrastructure. The failure of negative interest to increase the economic growth rate is unsurprising, as it's easy to predict that with globalization and off-shoring jobs, using cheap labor abroad is not salubrious economically for Europe. We in the US have used low interest rates as economic stimulus with the predictable result of sluggish growth. What will work is raising tax rates on the 1% with financial incentives in the form of tax deductions for investment in the infrastructure. Along with raising the number of well-paid jobs in the US, it gives the 1% a reason to put its money actively into economic growth rather than taking what the stock market will yield, with benefit only to the 1% who now earn 90% of all new wealth. Our infrastructure has been dangerously neglected by the GOP since 1980 and Ronnie Ray Gun, when government, in the person of the tax collector, was demonized. So to the 1% I say, tear down this wall, the obstacle to economic growth and create a foundation of tax revenues that will support economic expansion, along with improving the employment rate. Give Main Street and the 99% a chance to participate in prosperity handed to the 1% since 1980.
4
I would tend to agree with this article if it concerned the US economy. US infrastructure is in a sorry state so any fiscal stimulus geared towards serious infrastructure projects would do wonders in generating jobs and increasing productivity for the whole economy with lasting benefits for generations to come.
Western Europe however is a different story. Infrastructure is still in good shape so investments in it might create some jobs but wouldn't do much to impact the economy overall. It would be like giving unemployed people an additional check to make ends meet. Not at all a bad idea but not a real investment either.
After living in various European countries for 28 years, I tend to think the core issue is demographic. Shrinking working age population with each consecutive young generation being lower skilled because of their recent immigration to the EU. As good as the EU education systems may be, they're not prepared to educate so many foreigners quickly enough to be productive.
Also EU countries tend to have a bias towards exports which keep loosing their competitiveness due to the absurdly high price of the euro. I think it's time to start mobilizing capital in investments abroad rather relying on exports of goods and services.
Just my two cents
Western Europe however is a different story. Infrastructure is still in good shape so investments in it might create some jobs but wouldn't do much to impact the economy overall. It would be like giving unemployed people an additional check to make ends meet. Not at all a bad idea but not a real investment either.
After living in various European countries for 28 years, I tend to think the core issue is demographic. Shrinking working age population with each consecutive young generation being lower skilled because of their recent immigration to the EU. As good as the EU education systems may be, they're not prepared to educate so many foreigners quickly enough to be productive.
Also EU countries tend to have a bias towards exports which keep loosing their competitiveness due to the absurdly high price of the euro. I think it's time to start mobilizing capital in investments abroad rather relying on exports of goods and services.
Just my two cents
6
So, why is it any mystery that having negative interest rates doesn't do much for REAL economic growth
REALITY-CHECK: The only entities that can qualify to be PAID to borrow money are wealthy entities that don't need that subsidy
Normal people's credit-card issuers aren't paying their customers for running up their balances?
REALITY-CHECK#2: The imaginary goal of this Quant-Easing was that they would make lots of cheap/free/less-than-free money to the Giant Big Banks they would turn around. and loan that money back out to business and people to grow the economy
BUT the 1% already has all the money they need to do anything they want already, so they don't need this "Cheap-Money"
What the BIG-BOYS do with the free money is that they plow it back into paper-pushing rigged schemes in the finance industry.
The only things they want to 'invest' the QE money in are things that are short-term, highly-liquid,and ultra-low-risk
These actions DO produce some limited amount of REAL Economic Growth, but as everywhere else, almost all of those gains go to the 1%
- - - -
Tax Cuts and other nonsense will not produce any growth(except for growth in the Debt)
IN GENERAL, Growth is low because the bottom 70% are too poor to purchase much beyond what is almost completely essential, and they are no longer willing to go deeply in debt to live beyond their means under the delusion that things will be looking up for them in the future
REALITY-CHECK: The only entities that can qualify to be PAID to borrow money are wealthy entities that don't need that subsidy
Normal people's credit-card issuers aren't paying their customers for running up their balances?
REALITY-CHECK#2: The imaginary goal of this Quant-Easing was that they would make lots of cheap/free/less-than-free money to the Giant Big Banks they would turn around. and loan that money back out to business and people to grow the economy
BUT the 1% already has all the money they need to do anything they want already, so they don't need this "Cheap-Money"
What the BIG-BOYS do with the free money is that they plow it back into paper-pushing rigged schemes in the finance industry.
The only things they want to 'invest' the QE money in are things that are short-term, highly-liquid,and ultra-low-risk
These actions DO produce some limited amount of REAL Economic Growth, but as everywhere else, almost all of those gains go to the 1%
- - - -
Tax Cuts and other nonsense will not produce any growth(except for growth in the Debt)
IN GENERAL, Growth is low because the bottom 70% are too poor to purchase much beyond what is almost completely essential, and they are no longer willing to go deeply in debt to live beyond their means under the delusion that things will be looking up for them in the future
83
Why don't you tell this to Dr. Krugman?
A very short-term emergency response has become a structural feature in the money market. Microeconomic decisions that have resulted have seriously misallocated resources toward unproductive financial placements and real estate purchases, provided very low returns on saving - the main investment vehicle for the less wealthy - and has increased the effective cost of participatory insurance policies, thereby diverting spending from other goods and services.
The excuse that flooding the economy with cheap money is needed because governments wouldn't use fiscal stimulus was proven incorrect by Keynes in the mid-1930s. Giving the patient long-term doses of a medicine that doesn't work seems to be the way economists treat the economy.
A very short-term emergency response has become a structural feature in the money market. Microeconomic decisions that have resulted have seriously misallocated resources toward unproductive financial placements and real estate purchases, provided very low returns on saving - the main investment vehicle for the less wealthy - and has increased the effective cost of participatory insurance policies, thereby diverting spending from other goods and services.
The excuse that flooding the economy with cheap money is needed because governments wouldn't use fiscal stimulus was proven incorrect by Keynes in the mid-1930s. Giving the patient long-term doses of a medicine that doesn't work seems to be the way economists treat the economy.
2
The banks probably cannot do a whole lot.
What matters is long term policy. Banks cannot decide that. We expect instant returns and measure things on near sighted metrics. These are matters that require a generation or maybe generations to fix, but our system has at best a four year wait on a return. Look how long it has taken to even begin to see some very feeble signs that the economy is at least not tanking anymore. Even they come with some woe. This is already 8 years!
We are stuck in a system that engenders the notion that a turn around and progress can be measured in a maximum of two to three years. This is just folly and you might as well write another play on "Waiting for Godot". Once and a while you get luck, but few people in industry have the courage and determination (let alone that vision) to really look ahead far enough. Moreover, it is often un-realizable because few are in a sufficiently stable situation to make anything even close to these sort of decisions.
Finally, no one wants to take the rap when the spam hits the fan.
What matters is long term policy. Banks cannot decide that. We expect instant returns and measure things on near sighted metrics. These are matters that require a generation or maybe generations to fix, but our system has at best a four year wait on a return. Look how long it has taken to even begin to see some very feeble signs that the economy is at least not tanking anymore. Even they come with some woe. This is already 8 years!
We are stuck in a system that engenders the notion that a turn around and progress can be measured in a maximum of two to three years. This is just folly and you might as well write another play on "Waiting for Godot". Once and a while you get luck, but few people in industry have the courage and determination (let alone that vision) to really look ahead far enough. Moreover, it is often un-realizable because few are in a sufficiently stable situation to make anything even close to these sort of decisions.
Finally, no one wants to take the rap when the spam hits the fan.
1
Why talk about Europe. The same is true here in the United States. Get in your car and go for a ride. In just about every part of the United States roads need to be fixed. As evidenced by Flint, Michigan, our water systems are old and deteriorating and in need of repair. Some airports are in shoddy condition.
Let’s put America to work and fix our infrastructure for the next "Greatest Generation."
Let’s put America to work and fix our infrastructure for the next "Greatest Generation."
2
Interest rates aren't the problem. 99% of U.S. Citizens would do better in an European culture, from healthcare to education to the justice system. Our 1% are the only ones doing better here, than in Europe.
4
Meaningful fiscal policy is needed in the US as well. That means politicians from both parties need to work together.
Yeah, right.
Yeah, right.
2
Negative interest rates are an extension of zero-interest-rates, a policy the Editorial page of the Times has strongly, and blindly, advocated for the US on countless occasions, many of them recent.
A prolonged period of artificially low or negative interest rates is a bad thing, as today’s editorial notes, and as Europe is discovering. And the Editorial does not mention one of the most serious consequences: the devastating effects of low interest rates on savers, both individuals and institutions. In the US, this includes individuals at or near retirement, who can no longer rely on interest from their savings to fund their retirement; it also impacts institutional pension plans, both governmental and private, which have become grossly underfunded.
The Editorial correctly suggests that the European policy of negative interest rates is hurting the economies of European countries. But the same problem is occurring in the US. It would be much better, on both sides of the Atlantic, if, over the long haul, market forces could be the dominant determinant of interest rates.
A prolonged period of artificially low or negative interest rates is a bad thing, as today’s editorial notes, and as Europe is discovering. And the Editorial does not mention one of the most serious consequences: the devastating effects of low interest rates on savers, both individuals and institutions. In the US, this includes individuals at or near retirement, who can no longer rely on interest from their savings to fund their retirement; it also impacts institutional pension plans, both governmental and private, which have become grossly underfunded.
The Editorial correctly suggests that the European policy of negative interest rates is hurting the economies of European countries. But the same problem is occurring in the US. It would be much better, on both sides of the Atlantic, if, over the long haul, market forces could be the dominant determinant of interest rates.
6
Charging YOU to keep YOUR money -- an idea only a liberal would think makes sense.
1
Perhaps the people who make such decisions need to realize and admit that relying on consumerism as a driver of economic growth no longer works. It certainly doesn't seem logical that it would in developed countries, where most peoples needs and wants have, for the most part, been met. Governments should be spending money on public benefit projects that provide good paying, full time jobs, rather than hoping that their central bankers can solve the problems they've been elected to address.
1
A negative interest rate seems to be deflationary in the sense that the government is taking more money out of the economy over the term of the instrument than it is putting into the economy. The effect is much the same as a tax increase.
1
Since Europe and Japan are engaged in negative interest rate experiments, expect to see them here in the US before long.
The unstable global financial system designed for the benefit of bankers is listing badly to port.
Have you purchased at least a little gold?
The unstable global financial system designed for the benefit of bankers is listing badly to port.
Have you purchased at least a little gold?
2
This shouldn't even be Economics 101. That, after all is a college clas.
This should be something taught in Jr. High or Middle School.
When consumer demand is too low to "justify" private investment, the public sector (government) must step in - hopefully with productive investments in basic infrastructure (which includes public education - and public education should be a big part of a lifelong system of educational infrastructure focusing on the needs of democracy before the needs of employers.).
The suicidal siphoning of wealth into the hands of an idiot elite (.1%) bunch of baby men has caused the dereliction of transportation and educational infrastructure and has prevented the necessary restructuring of our energy infrastructure.
We need a forward looking construction of all forms of transportation infrastructure with special emphasis on rapid mass transit while not neglecting the infrastructure needed for safe bicycling and walking.
We need a massive restructuring of the energy infrastructure focused on sustainable and safe sources of renewable, non exhaustable, energy sources with minimal environmental impacts. That must also include investment in all forms of energy conservation technologies including new technologies that use energy more efficiently.
But we fell victim to the evil enchantment of supply side grifters who continue to generate confusion and division for their own personal profit.
This should be something taught in Jr. High or Middle School.
When consumer demand is too low to "justify" private investment, the public sector (government) must step in - hopefully with productive investments in basic infrastructure (which includes public education - and public education should be a big part of a lifelong system of educational infrastructure focusing on the needs of democracy before the needs of employers.).
The suicidal siphoning of wealth into the hands of an idiot elite (.1%) bunch of baby men has caused the dereliction of transportation and educational infrastructure and has prevented the necessary restructuring of our energy infrastructure.
We need a forward looking construction of all forms of transportation infrastructure with special emphasis on rapid mass transit while not neglecting the infrastructure needed for safe bicycling and walking.
We need a massive restructuring of the energy infrastructure focused on sustainable and safe sources of renewable, non exhaustable, energy sources with minimal environmental impacts. That must also include investment in all forms of energy conservation technologies including new technologies that use energy more efficiently.
But we fell victim to the evil enchantment of supply side grifters who continue to generate confusion and division for their own personal profit.
2
Exactly right. When businesses have excess capacity, they won't borrow to expand no matter how low the interest rate. Likewise when consumers are struggling they won't qualify for loans to buy more stuff no matter how low the rates. We should have learned this lesson in the 1930's.
1
Negative interest rates are an admission of the failure the current state of our free market economy. I can remember my Econ professor in the 1970's in macroeconomics course stating that a free market economy cannot function for very long with real negative interest rates without catastrophic consequences? Was he wrong or right?
2
Markets did not fail. Banks failed, then changed market and financial accounting rules to cover it up.
1
Negative interest rates effectively destroy free markets, which are necessary for long term sustained growth. They artificially drive up equity and real estate valuations. In the current regulatory environment, atsame time as rates are lowered lenders are actually discouraged to take risks. With extensive micro managing punitive regulation, lenders such as banks lend to low risk established borrowers and still make a profit. Fearing criticism and prosecution for improperly managing risk, they do not lend to more entrepreneurial borrowers or, in the case of residential borrowers, higher risk lower income borrowers in questionable neighborhoods. Thie entrepreneurial market is more left to non regulated lenders, who place severe economic terms and covenants on the borrowers. Riskier residential borrowers either do not get loans or rely on government guarantee or special programs, if available. At this point, central bankers know that a sudden increase in interest rates will cause a massive collapse in equities and commercial real estate and also increase the costs of government borrowing, which has been used to sustain this whole mess. This is the proverbial painting oneself into a corner.
4
It is quite simple really. The lack of monetary policy effect reveals that money doesn't drive economic systems and never did. Human needs and wants drive economic systems, which is to say, demography is destiny. Europe is rich and rapidly aging. The needs and wants of old, rich people can't be expected to much grow. Change the demography to young and poor, and the needs and wants will grow. Europe's only hope it seems is immigration. Fortunately it has a ready pool of mainly poor, mainly young people who would love to leave their war-torn lands to emigrate. Unfortunately, the pool is mainly Muslim, with little interest in cultural assimilation.
Germany, France, Sweden, etc., can save their economic systems from malaise through more liberal immigration. But they will risk losing what it means to be German, French, Swedish, etc. if they do so.
But the notion that more government works would invigorate growth is nonsense. If the demographics don't change, more government spending would do precisely what cheap money does to other asset classes--inflate bubbles that create oversupply that eventually yields lower prices that ultimately lead to a deflationary spiral.
In Europe, as in Japan, but not so much in the US with its quite liberal immigration policies, the core problem causing low or slow growth is demographics. Without fixing the demographics, all the free money won't matter in the long run, but will be deleterious in the near term.
Germany, France, Sweden, etc., can save their economic systems from malaise through more liberal immigration. But they will risk losing what it means to be German, French, Swedish, etc. if they do so.
But the notion that more government works would invigorate growth is nonsense. If the demographics don't change, more government spending would do precisely what cheap money does to other asset classes--inflate bubbles that create oversupply that eventually yields lower prices that ultimately lead to a deflationary spiral.
In Europe, as in Japan, but not so much in the US with its quite liberal immigration policies, the core problem causing low or slow growth is demographics. Without fixing the demographics, all the free money won't matter in the long run, but will be deleterious in the near term.
1
Take Apple Corp as an example - the comapny has saturated their market with product and are seeing slower growth over the long haul. A smaller bottom line for them doesn't mean the company is tanking but rather indicates finite consumer base and they have nothing truly innovative to sell to stimulate growth.
The overall economy is in the same boat. The western economies are at a saturation point. The large multinationals are suppressing opportunity for innovation protecting their territory. Governments are afraid to make policy that these big guys say will harm the economy (their businesses). they hang on to their money not spending on new ideas because they fear failure in the eyes of Wall Street.
only thing we little folks can do is spend locally - don't go to big corporate stores so much, shop more judiciously at a local independent business. Support community projects. There is happiness in it, too.
The planet is a finite sphere and new ways of gaging economic health are needed because a continuous striving for growth through consumer purchasing is going to sap the earth's resources beyond capacity. Already she has reached a consumption. saturation point
The overall economy is in the same boat. The western economies are at a saturation point. The large multinationals are suppressing opportunity for innovation protecting their territory. Governments are afraid to make policy that these big guys say will harm the economy (their businesses). they hang on to their money not spending on new ideas because they fear failure in the eyes of Wall Street.
only thing we little folks can do is spend locally - don't go to big corporate stores so much, shop more judiciously at a local independent business. Support community projects. There is happiness in it, too.
The planet is a finite sphere and new ways of gaging economic health are needed because a continuous striving for growth through consumer purchasing is going to sap the earth's resources beyond capacity. Already she has reached a consumption. saturation point
5
You're right except our current economic system implies infinite growth both in economic activity and in human numbers. This of course, defies all logic, common sense and nature. We can only survive as a species and planet if we learn to live within our means and that means sustainably which will will require reigning in our endless growth and endless population. I can't see that there is even a fact based discussion going on in these areas at this point.
1
If austerity is prescribed in a deflationary environment, what would they prescribe in an inflationary environment. Stimulus? I don't know how austerity can still be defended in Europe. At this point, it's fiscally irresponsible.
5
Very troubling article indeed.
First, the link between zero interest rates and investment (or consumer spending) is rather long with too many mediating and moderating variables. Cutting one to stimulate the other is a fool's errand.
Second, banks have never made money (but bankers have). Which means banks are crooks. Cutting interest rates to zero means that banks get to charge borrowers mysterious fees; there is no real benefit to the consumer paying hefty fees and interest rates on consumer credit. What stimulation of demand?
Third, there is no evidence to suggest that low interest rates produces new, revolutionary technology that produces new industries or markets; there is every evidence to suggest that it fuels reckless speculation that eventually pop. Apple Inc.'s success is not linked to interest rates - not by a long shot.
The only point in the article that makes sense is thus: low interest rates should fuel spending on infrastructure. Nice theory. Japan tried, it did nothing for the economy. True; US badly needs infrastructure. But I fear we will spend it on jobs programs (called defense) and expand entitlements instead. If the results of the post 9/11 opening of federal spigots are any indication, we know how to spend but not to invest. If we borrow for infrastructure, we are ushering in an era of crony capitalism at its worst (bridges to nowhere).
This is one tough question. Hence, the wariness.
Kalidan
First, the link between zero interest rates and investment (or consumer spending) is rather long with too many mediating and moderating variables. Cutting one to stimulate the other is a fool's errand.
Second, banks have never made money (but bankers have). Which means banks are crooks. Cutting interest rates to zero means that banks get to charge borrowers mysterious fees; there is no real benefit to the consumer paying hefty fees and interest rates on consumer credit. What stimulation of demand?
Third, there is no evidence to suggest that low interest rates produces new, revolutionary technology that produces new industries or markets; there is every evidence to suggest that it fuels reckless speculation that eventually pop. Apple Inc.'s success is not linked to interest rates - not by a long shot.
The only point in the article that makes sense is thus: low interest rates should fuel spending on infrastructure. Nice theory. Japan tried, it did nothing for the economy. True; US badly needs infrastructure. But I fear we will spend it on jobs programs (called defense) and expand entitlements instead. If the results of the post 9/11 opening of federal spigots are any indication, we know how to spend but not to invest. If we borrow for infrastructure, we are ushering in an era of crony capitalism at its worst (bridges to nowhere).
This is one tough question. Hence, the wariness.
Kalidan
4
These negative rates were intended as a stimulus and it hasn't worked. The whole package of austerity measures that Europe employed also haven't worked.
On our side of the pond we tried quantitative easing, or printing money and giving it to the banks. Obama added a very modest government spending package and that has had much effect either. Granted, he wanted more, but the GOP congress wouldn't have it. Their answer to everything is cut taxes and prosperity will follow. The data paints a different picture, but why let facts get in the way of your conclusions?
The big picture is even more dismal. Even if austerity or QE worked, they're both predicated on the assumption of increased productivity within our current model, which means increased resource consumption. Unless all this "growth" occurs in a radically different model, the earth simply cannot sustain it. If radical changes aren't made in the way we think about our economic relationships we are driving ourselves over a cliff. Mother Nature will survive. She has for 2 billion years, be we humanoids may not.
On our side of the pond we tried quantitative easing, or printing money and giving it to the banks. Obama added a very modest government spending package and that has had much effect either. Granted, he wanted more, but the GOP congress wouldn't have it. Their answer to everything is cut taxes and prosperity will follow. The data paints a different picture, but why let facts get in the way of your conclusions?
The big picture is even more dismal. Even if austerity or QE worked, they're both predicated on the assumption of increased productivity within our current model, which means increased resource consumption. Unless all this "growth" occurs in a radically different model, the earth simply cannot sustain it. If radical changes aren't made in the way we think about our economic relationships we are driving ourselves over a cliff. Mother Nature will survive. She has for 2 billion years, be we humanoids may not.
7
What they should tell the US is that they don't work, have unintended negative consequences and it should confirm that controlling the economy by whatever means is ineffective in a free society. We are now stuck with low interest rates that have not effected the economy in an positive way, but rather a negative way for those that use interest to fund their retirement. So much for those economists that think they know a lot more than they actually do.
4
Surprising that the socialist countries of Europe with high taxes on the rich and benefits distributed to a large portion of their population is seeing week demand and economic stagnation. Isn't that the model that the NY Times has been advocating for decades?
3
No,
Contrary to conservative beliefs, Europe is very much like the US in economic policy. They do what it takes to protect bankers and the wealthy while punishing/ignoring the poor and middle class.
Contrary to conservative beliefs, Europe is very much like the US in economic policy. They do what it takes to protect bankers and the wealthy while punishing/ignoring the poor and middle class.
I always thought companies investing in infrastructure and their employees along with making good products and decent wages so people can buy them helped an economy. An education system that trains people to do something might help as well. We're not doing any of that. We bail out the crooks on Wall Street and let banks have money for nothing and give more tax cuts to the top. How long are we going to keep doing this before we realize it doesn't work, never has and never will? I get that this government is by and for the wealthy, but at some point don't we need to acknowledge that the last 30 years of shipping decent jobs over seas, giving away the farm to the top importing poor unskilled people by the millions and letting everything else go to hell while being endlessly at war haven't worked?
1
As long as rich people, the financial industry, and their handsomely rewarded politicians, pundits, and think tanks are in charge of economic policy in societies, they will try everything else first (and give each "solution" some soundbite brand name, such as negative interest rates, austerity, deregulation, etc.) before they get around to sharing the wealth (e.g., government spending, invest in infrastructure, raising taxes on the rich and closing tax loopholes, etc.).
I believe that all of Europe could go under, even Germany.
2
Ultimately no country ever goes bankrupt. Only the standard of living can fall. Even Greece will survive, but it's standard of living will not.
We are invaded by cheap money, money created out of thin air, money with little value. This inflation of money is preposterous, and the very sense of what money is has become wicked. Is money an honest IOU or is it Fiat money?
If only more people would understand that the "creation" of money has become a form of prestidigitation of financial institutions in kahootz with rating companies and financial regulators it would be helpful, for their own well being. But as this humongous racket has been worked by the above and the wool pulled over our faces, most people only "get" the consequences without understanding the causes and how the pernicious process works.
Bottom line is; the society has fallen on the hands of financial crooks who are creating false "values", a process that has greatly accelerated the inequality between rich and poor, and has created ungodly wealth for a class of crooks who have a way to shelter their loot in tax havens. Negative rates is only but an indicator of the ruse; the most salient one though is that we have become slaves to Money, while the whole edifice is sitting on an impossible weak foundation.
As with all forms of exploitation that lead to obscene accumulation of wealth and polarization of society in a monied aristocracy and the have nots, the outcome will not be a pretty one. A Revolution is coming, and the concept of money will be at its heart; false money is an indicator of social (in)justice, a concept that we are loosing sight of...
If only more people would understand that the "creation" of money has become a form of prestidigitation of financial institutions in kahootz with rating companies and financial regulators it would be helpful, for their own well being. But as this humongous racket has been worked by the above and the wool pulled over our faces, most people only "get" the consequences without understanding the causes and how the pernicious process works.
Bottom line is; the society has fallen on the hands of financial crooks who are creating false "values", a process that has greatly accelerated the inequality between rich and poor, and has created ungodly wealth for a class of crooks who have a way to shelter their loot in tax havens. Negative rates is only but an indicator of the ruse; the most salient one though is that we have become slaves to Money, while the whole edifice is sitting on an impossible weak foundation.
As with all forms of exploitation that lead to obscene accumulation of wealth and polarization of society in a monied aristocracy and the have nots, the outcome will not be a pretty one. A Revolution is coming, and the concept of money will be at its heart; false money is an indicator of social (in)justice, a concept that we are loosing sight of...
2
The grand experiment has failed, or, at least has had limited success. it's past time to let it go.
Yet, monetary policy is only part of the equation. The other, of course is fiscal policy...a blunt, inefficient tool. It seeks to increase aggregate demand (GDP) by increasing "government investment" in the GDP equation. There's also, hopefully, spillover effect on consumer spending, and, there's the rub. Consumer spending comprises 2/3 of GDP and is dependent upon a whole host of variables-personal income, personal tax rates, propensity to save vs. spend vs. invest, and consumer confidence. The latter variable was nearly shattered during 2008 and hasn't yet recovered. To me, that's the crux of the problem.
Yet, monetary policy is only part of the equation. The other, of course is fiscal policy...a blunt, inefficient tool. It seeks to increase aggregate demand (GDP) by increasing "government investment" in the GDP equation. There's also, hopefully, spillover effect on consumer spending, and, there's the rub. Consumer spending comprises 2/3 of GDP and is dependent upon a whole host of variables-personal income, personal tax rates, propensity to save vs. spend vs. invest, and consumer confidence. The latter variable was nearly shattered during 2008 and hasn't yet recovered. To me, that's the crux of the problem.
1
On the contrary, investing in government infrastructure is a good way to revitalize an economy. Cutting taxes on the other hand does because rich don't spend in proportion to the rest of the populace on items that benefit society.
It is only now that the NYT editorial board is learning and understanding the risks of cheap, easy money? You should have a talk with your economics columnist.
Central banks are pushing on a string with cheap easy money and credit, and creating enormous financial risks in the process. Cheap money and easy crediy have created most of the financial panics throughout history, including the disaster of 2008.
Governments in Europe and US need to deregulate and simplify tax codes.
Central banks are pushing on a string with cheap easy money and credit, and creating enormous financial risks in the process. Cheap money and easy crediy have created most of the financial panics throughout history, including the disaster of 2008.
Governments in Europe and US need to deregulate and simplify tax codes.
8
The big problem with cheap and easy money is that it's not producing growth or inflation. Business seems well aware of slow growth and isn't spending that money on salaries or business expansion and is instead ultimately hoarding it.
Cheap money only seems to benefit the wealthy and those able to reap rewards from equity growth. They have the ability to arbitrage cheap borrowing and equities, basically skimming the cream off of cheap money. Consumers who face increasing health care and housing costs amid stagnant wages can't benefit from cheap money. Increased underwriting scrutiny has made mortgage borrowing difficult, and that's for an asset that is (supposedly) its own security; consumers have neither the experience nor the access to borrow cheap money to reap equity returns.
Cheap money only seems to benefit the wealthy and those able to reap rewards from equity growth. They have the ability to arbitrage cheap borrowing and equities, basically skimming the cream off of cheap money. Consumers who face increasing health care and housing costs amid stagnant wages can't benefit from cheap money. Increased underwriting scrutiny has made mortgage borrowing difficult, and that's for an asset that is (supposedly) its own security; consumers have neither the experience nor the access to borrow cheap money to reap equity returns.
1
The original concept of of negative interest rates came from Stamp money. Stamp money increased the velocity by imposing a "use it or lose it" penalty. Losing a few basis points may not be a strong enough penalty.
1
Monetary stimulus is not the only tool of growth. Europe is a complex economic system involving issues of negative core population growth, unemployment rates driven by highly unfavorable labor laws, a terrible business climate for growth and business formation and infighting among member nations on policy. Frankly, I'm surprised that it is growing as quickly as it is. The Nytimes does a disservice by simply focusing in on monetary policy and ignoring the rest of the web of regulations, laws, and fiscal policy.
2
Well, what do you know! The NYT has some sensible comments on NIRP policies here. To spend into the economy to boost jobs etc is anathema to Neo-liberal and neo-con politicians and the rich. Yet the government can easily do it. Monetary Sovereignty allows it at NO COST to taxpayers or anyone else. It is after all what ben Bernanke did to stop the GFC implosion. The fed just credited the banks' reserve accounts in the Fed. The spending costs zero in interest as the government uses its own money
Monetary policy is politically easy. That is why it is done instead of things harder to do. Sometimes it works, sometimes it misses the real problem, but it is political ease rather than the nature of the problem that makes it the go-to tool.
It is the same in the US. Obama can't get spending from Congress, but we can get low interest rates, so that is what we get. If it is not the right answer, it is still all we can get.
It only fits some problems. It is not one-size-fits-all, but it is still the one answer we can get.
It is the same in the US. Obama can't get spending from Congress, but we can get low interest rates, so that is what we get. If it is not the right answer, it is still all we can get.
It only fits some problems. It is not one-size-fits-all, but it is still the one answer we can get.
2
How it probably ends: Extant global currencies will be canceled and replaced with a new currency system. Expect the exchange rates imposed to be highly favorable to financial insiders and highly unfavorable to you.
Expect to be further disenfranchised, politically, too.
Expect to be further disenfranchised, politically, too.
18
I've been posting stuff about the interest rate scam since the 2008 financial crisis. ZIRP/QE outed the bankters. There can be no exit from the bond corner, I said.
Initially the bankters claimed to have a so-called exit plan. Later, the banksters changed their story, saying they did not need an exit plan after all or whatever.
Fact is, they're lying, something anyone who understands money and markets and mathematics can prove, but the scam continues because guess what?
The average person has no idea what money is, how markets work, and, as for mathematics, they might remember that Algebra was the name of the donkey on "Little Rascals".
So, I keep saying what I know is an incontrovertibly true and people keep calling me a kook because they did not and cannot do the necessary math.
Hopeless situation...
Put down your newspapers and educate yourselves out there or expect more of the same.
Initially the bankters claimed to have a so-called exit plan. Later, the banksters changed their story, saying they did not need an exit plan after all or whatever.
Fact is, they're lying, something anyone who understands money and markets and mathematics can prove, but the scam continues because guess what?
The average person has no idea what money is, how markets work, and, as for mathematics, they might remember that Algebra was the name of the donkey on "Little Rascals".
So, I keep saying what I know is an incontrovertibly true and people keep calling me a kook because they did not and cannot do the necessary math.
Hopeless situation...
Put down your newspapers and educate yourselves out there or expect more of the same.
22
We all have credit now, and that’s less than nothing.
“Die Moor Soldaten” was a song written during the 1930s by international socialists imprisoned by German national socialists.These political prisoners were worked to death, forced to dig ditches all day and fill them back in at night. The poor wretches would have understood the difference between credit (debt), and money(cash).
Debt, or borrowing, is a negative, a ditch from which one must make a greater back breaking effort to move dirt up and out as the hole becomes deeper and the nearby mountain of dirt becomes higher during the day.
Money is a positive, the bulge that a hill of dirt makes above the field from which it’s easy, in the short term to move dirt downhill back into the hole. Money, be it cash, a balance in a checking account or savings at a bank is wealth. It is better than nothing. One can dispose of the stuff easily like our Soldaten found it easier to push mud back into the hole. It flows effortlessly following gravity in north German swamps. Government historically diluted the gold and silver in their coinage or issued fiat currencies and so could cause money inflation and affecting citizens’ economic behaviors in the short term. Keynesianism worked (maybe) before modern economies converted to borrowing.
Credit creates money only if it borrowed into existence. It’s becoming toxic to consumers around the world, so making it easier to borrow does nothing to encourage taking more of the miasma.
“Die Moor Soldaten” was a song written during the 1930s by international socialists imprisoned by German national socialists.These political prisoners were worked to death, forced to dig ditches all day and fill them back in at night. The poor wretches would have understood the difference between credit (debt), and money(cash).
Debt, or borrowing, is a negative, a ditch from which one must make a greater back breaking effort to move dirt up and out as the hole becomes deeper and the nearby mountain of dirt becomes higher during the day.
Money is a positive, the bulge that a hill of dirt makes above the field from which it’s easy, in the short term to move dirt downhill back into the hole. Money, be it cash, a balance in a checking account or savings at a bank is wealth. It is better than nothing. One can dispose of the stuff easily like our Soldaten found it easier to push mud back into the hole. It flows effortlessly following gravity in north German swamps. Government historically diluted the gold and silver in their coinage or issued fiat currencies and so could cause money inflation and affecting citizens’ economic behaviors in the short term. Keynesianism worked (maybe) before modern economies converted to borrowing.
Credit creates money only if it borrowed into existence. It’s becoming toxic to consumers around the world, so making it easier to borrow does nothing to encourage taking more of the miasma.
8
Why is it that the NY Times Editorial Board understands that the Federal Reserve's ultra low interest rate policy is HURTING AMERICANS, but the Federal Reserve Board of Governors, the so-called experts in this matter are clueless and useless? This is another example of the complete breakdown of our government institutions.
I understand, Congress refuses to do the Fiscal policy that is necessary.
But if Monetary policy is hurting not helping, then only a fool would keep doing it. Yet we hear the same speech over and over from Janet Yellen after every Fed meeting. The hearings before Congress are a circus of pontificating and posturing.
We have no Leaders, only Circus Performers in all areas of Government.
I understand, Congress refuses to do the Fiscal policy that is necessary.
But if Monetary policy is hurting not helping, then only a fool would keep doing it. Yet we hear the same speech over and over from Janet Yellen after every Fed meeting. The hearings before Congress are a circus of pontificating and posturing.
We have no Leaders, only Circus Performers in all areas of Government.
31
Have you ever considered that the economists at the Fed know more than you or the Times editorial board? And just because something is not working for you it may have a positive impact overall? Sorry to say but the Fed economists are among the greatest economists in the world. I'll take their word over that of a few people who sit around all day giving their opinions on topics they know little about
It might be because higher interest rates here would attract a flood of money pushing up the value of the dollar, reducing exports and endangering American jobs.
The editorial is right in stating NIRT is useless at solving this chronic crisis (i.e. depression).
But the most worrying thing is that rising interest won't solve things either: on the contrary, it would crash the already fragile economy faster than low, ZIRT and/or NIRT are doing right now.
But the most worrying thing is that rising interest won't solve things either: on the contrary, it would crash the already fragile economy faster than low, ZIRT and/or NIRT are doing right now.
2
Exactly right. Can't keep low interest rates, can't raise them. What should we do? Stop handing money to banks and bankers; they will sit on it. Put a basket of cash on every street corner. Fling money out of planes. Leave it in envelopes on park benches. Put a c-note in every cereal box. And while you're at it, tax companies when they try to buy back their stock, tax them on every nickel stashed overseas, and then tax them when they lie down and when they rise up, for good measure. Tax investment income at 5 times the rate of earned income. Start putting the money where it multiples, out into the hands of regular people, to create demand.
time for the governments of the world to be honest: the 2008 recession has not ended and the only industry to have benefitted from ZIRP is the financial industry. small businesses and regular citizens do not need more debt anymore than greece or puerto rico do. it's time to raise interest rates to a level that rewards regular savings. it's time to regulate the credit markets to protect consumers and small businesses. it's time to spend money on affordable housing. it's time to have regulation that stimulate investment in new industries like solar. it's time for a global debt reset which will free up incomes on all levels to enter the consumer economy.
12
The whole idea of low interest rates is so there are not rewards for stashing all of your money in a bank account
The European psyche is totally different from that of the U.S. (and to some extent Britain): European citizens and corporations are far less focussed than their U.S. counterparts on short-term growth, and will therefore invest only when they view their investments, incomes and profits as sustainable. Hence the very high household savings rate.
That is why Germany, for example, barely sneezed during the 2008 crash, and why a subprime crash could not possibly have occurred with borrowers having had to deposit 30 % of the property's value in cash and to have demonstrated income commensurate with their mortgage installments.
As for infrastructural investments, Europe is already ahead of the U.S. in virtually every category from high speed rail to internet speeds (I have 45 MB/S at home verified down- and upload speeds), so I do not see what more can be done. Europe is in a state of slow growth, which in my opinion is more desirable than the inevitable, soul destroying boom-and-bust cycles of the U.S..
That is why Germany, for example, barely sneezed during the 2008 crash, and why a subprime crash could not possibly have occurred with borrowers having had to deposit 30 % of the property's value in cash and to have demonstrated income commensurate with their mortgage installments.
As for infrastructural investments, Europe is already ahead of the U.S. in virtually every category from high speed rail to internet speeds (I have 45 MB/S at home verified down- and upload speeds), so I do not see what more can be done. Europe is in a state of slow growth, which in my opinion is more desirable than the inevitable, soul destroying boom-and-bust cycles of the U.S..
84
Yes they believe in government even more than Hillary. That does not work too well in a free and diverse society like we have in the US.
1
If we had held to the mortgage requirements you describe, something we used to do, there would have been no financial crisis. Very good point.
4
"As for infrastructural investments, Europe is already ahead of the U.S. in virtually every category from high speed rail to internet speeds (I have 45 MB/S at home verified down- and upload speeds), so I do not see what more can be done. Europe is in a state of slow growth, which in my opinion is more desirable than the inevitable, soul destroying boom-and-bust cycles of the U.S.."
I have some young adult nephews and nieces in Spain who would disagree strongly. The snail-paced growth imposed on Spain by the EC have been devastating to a whole cohort of young people eager to be gainfully employed and start families. A whole generation is being lost. This is not something we want to emulate here in the US.
I have some young adult nephews and nieces in Spain who would disagree strongly. The snail-paced growth imposed on Spain by the EC have been devastating to a whole cohort of young people eager to be gainfully employed and start families. A whole generation is being lost. This is not something we want to emulate here in the US.
2
"... lower rates don’t address the real economic problems of many European countries: weak consumer demand and weak business investment."
Unless there is predicted demand, business will not invest. The latter follows the former.
Consumers, for the most part, derive there revenue from labor. As the amount spent on labor, either by automation or offshoring of jobs, consumer revenue is decreased and, hence, demand is decreased.
One lesson is that supply-side economics does not work.
Unless there is predicted demand, business will not invest. The latter follows the former.
Consumers, for the most part, derive there revenue from labor. As the amount spent on labor, either by automation or offshoring of jobs, consumer revenue is decreased and, hence, demand is decreased.
One lesson is that supply-side economics does not work.
5
Correction: Should say "As the amount spent on labor is decreased,..."
1
Not those issues but rather a lack of opportunity somewhat due to excessive government intervention, too strong of unions, and terrorists.
1
Show me you numbers.
I am talking strictly arithmetic here.
Simple in the limit example - if your customers do not have money, you will not sell them anything.
Slightly different: How many Mercedes E500 class cars are sold to people making less that median income?
Now do the math.
I am talking strictly arithmetic here.
Simple in the limit example - if your customers do not have money, you will not sell them anything.
Slightly different: How many Mercedes E500 class cars are sold to people making less that median income?
Now do the math.
I would suggest that a 1.6% growth rate is actually pretty good and might be the new norm in Europe, the United States, and other countries. Eventually markets become saturated especially with the relatively stable populations in Europe and the United States and it would be impossible to maintain the lofty economic growth numbers economists seems to think we need. To think that world economies can forever have a 5-6% annual growth rate is both ludicrous and unsustainable. What will happen to the global economy if and when the world population finally stabilizes and actually starts to shrink?
58
Yes pretty good related to your expectations, and perhaps as good as could be expected. GDP is not that effective of a measurement, it is difficult to accurately measure and is too indirect. How about measuring very closely employment?
The article also doesn't take into account GDP growth per capita. Given that Europe and Japan are declining in population while USA is rising, then 1.6% growth in Europe is equivalent to about 2.6% growth in the US.
We have entered a new era where old economic theories no longer work to stimulate or grow the economy. We need a sustainable economy where resources are properly managed and demand take precedence over supply. We also must encourage saving more than borrowing along with paying for our government as we go for most things. When it comes to civil infrastructure, we must use common sense and build only what is needed and then ensure there is money to maintain it.
Trump and Hillary are absolutely clueless on how to "fix" the global economy and so are most of the world's leaders. They are depending on unlimited growth to save their countries and the world. We have seen just how well these desperate measures work. It is foolish to think we will see a different result from the dame old same old.
Trump and Hillary are absolutely clueless on how to "fix" the global economy and so are most of the world's leaders. They are depending on unlimited growth to save their countries and the world. We have seen just how well these desperate measures work. It is foolish to think we will see a different result from the dame old same old.
17
Good points but nobody can get elected proposing such. Now the US debt should be capped at the value of capital items, no borrowing for expenses. And it needs a method to pay for those capital items just as a business has to do if it wants to continue in existance.
1
Ok, so basically
a) first you tax human trading and production activities (businesses) more
b) then you offer them cheaper loans so that they get more in debt
c)... in an environment that consumers can't buy, because they are also over-taxed and burdened with debt.
d) ... and if they go crazy and borrow more, you'll assume they have money and you'll tax them more.
You'd be surprised how many people borrow on interest to pay... their taxes!
Genius.
a) first you tax human trading and production activities (businesses) more
b) then you offer them cheaper loans so that they get more in debt
c)... in an environment that consumers can't buy, because they are also over-taxed and burdened with debt.
d) ... and if they go crazy and borrow more, you'll assume they have money and you'll tax them more.
You'd be surprised how many people borrow on interest to pay... their taxes!
Genius.
5
Steve Liesman in an Q & A with Janet Yellen our head of the cabal of private bankers that control our currency ask what the Fed need to see in the economy for them to raise interest rates? Accordinging to the Taylor Rule, a much respected measurement, interest rates based on unemployment, GDP, and inflation should have rates at 3-4% for the 10 years treasury.
Chairperson Yellen answered in a most surprising way: A rambling disjointed and mostly unfollowable answer than said nothing to the point. The alleged magic of 2% inflation target (hey why not 50% if it's so great) is the excuse for maintaining the easiest monetary policies ever recorded in human history.
Not only is zero bound interest rates and easy money easy to do but hard to get out of but the negative effects on the rest of the 70% of the economy is devastation. Seniors retirees, savers for first time home buying, insurance companies, pension funds, and a whole host of other parts of the economy that cheap money doesn't help.
The central banks have painted themselves into a corner that they are terrified and globally ununited to solve. Their vaunted "wealth effect" with special emphasis on "effect" is really the god they pray to now. To them all, its all about STOCK PRICES. Its their everyday news bulletin propaganda that everything is fix. Zero bound forever proves just the opposite.
Chairperson Yellen answered in a most surprising way: A rambling disjointed and mostly unfollowable answer than said nothing to the point. The alleged magic of 2% inflation target (hey why not 50% if it's so great) is the excuse for maintaining the easiest monetary policies ever recorded in human history.
Not only is zero bound interest rates and easy money easy to do but hard to get out of but the negative effects on the rest of the 70% of the economy is devastation. Seniors retirees, savers for first time home buying, insurance companies, pension funds, and a whole host of other parts of the economy that cheap money doesn't help.
The central banks have painted themselves into a corner that they are terrified and globally ununited to solve. Their vaunted "wealth effect" with special emphasis on "effect" is really the god they pray to now. To them all, its all about STOCK PRICES. Its their everyday news bulletin propaganda that everything is fix. Zero bound forever proves just the opposite.
5
Great points and right on.
2
Monetary policy in itself is an inadequate instrument of economic revival unless well calibrated with the supportive financial policices that help create jobs and demand. For, the lack of productive public spending also does discourage the private sector spending that results into stagnation. And, the cheap borrowed idle money lands up ultimately as the speculative hot money abroad threatening the stability of financial markets.
2
There is no method to control or even influence an economy like the US has, it is far too diverse and we are free to do stupid things. That economic activity that demand creates happens in countries like say India which does little to assist the US.
2
More proof austerity doesn't work it is how you spend it and it is the crooks that are over charging for products they use or profits they pay to the company but not the wage of the worker who produces the product. If you correct those situations how much you spend then is is not the problem.
2
What austerity are you thinking of, it does not exist in Europe. Not even Greece. Those crooks that are over charging for products and underpaying for workers should be very profitable. I don't see too many of them and they are in the tech area like Apple. Surely no oil company, nor many manufacturing ones either.
1
In case you missed it the tech revolution is eliminating workers at a very fast rate. Corporate profits, distributed in dividends and cap gains is money that people spend. Particularly an aging population that is leaving the work force and no longer earns their living from wages. There are well over a 100 Million people in this country with 401K plans, private and public pensions. Those pensions are highly dependent on corporate profits.
1
The only thing that remedies weak consumer demand is more money in consumers' pockets. That is why a prompt increase of the minimum wage to $15 is the only kickstart we need. Creating more jobs doesn't increase demand if the jobs pay so low that working people can't afford to spend anything.
4
But we don't have weak consumer demand, and and demand would improve foreign economies much more than the US. We have weak manufacturing related to our current demand, we have too much debt, and too little opportunity.
1
That assumes that more money from wages has no impact on dividends, cap gains and prices. Dividends and cap gains go into consumer pockets and cost increases sometimes increases the cost of goods and services. Rising wages are needed to increase demand but only if they are raising faster then consumer prices and not at the expense of corporate profits that are being distributed to consumers through dividends and cap gains.
The US population is aging quickly, Many people who live on a combination of SS and interest on bonds are seeing their income drop every time they have to replace a bond in their savings portfolio. The only way for this increasing population to increase their income is through either rising bond yields or stock prices and dividends. That includes many public and private sector Union workers who's pension are under severe pressure.
The US population is aging quickly, Many people who live on a combination of SS and interest on bonds are seeing their income drop every time they have to replace a bond in their savings portfolio. The only way for this increasing population to increase their income is through either rising bond yields or stock prices and dividends. That includes many public and private sector Union workers who's pension are under severe pressure.
The principle on which banks profitability is determined by the difference between the interest rates they pay on deposits and the interest they receive on loans to borrowers. Normally, there there is a 2 percentage point difference between the two that makes the banks profitable. However, if the interest rate goes south (or negative in some cases), the banks will not be in a position to pay interest on deposits which will force the customers to withdraw their deposits and invest in countries that pay a higher interest rate. This will have a spiral effect as the banks may be reluctant to advance loans as they have to absorb the cost of negative interest rate. This situation can lead to uncertainty as it may create unemployment and possibly lead to deflation.
2
There is a big works project afoot in Europe, addressing the needs of refugees and migrants. It's the only growth industry on the continent, and it's better than starting a war. We could use a WPA and CCC here, but the leadership is lacking, as several posters have pointed out. So manning control points and refugee camps is the only option.
One aspect that isn't mentioned, is that negative interest rates drive down the cost of export products, and are a way to beggar thy neighbor. That's why Sweden, Denmark and Switzerland had to go negative, too. It's the only way to wage economic warfare, now that tariffs are generally regulated by treaty.
One aspect that isn't mentioned, is that negative interest rates drive down the cost of export products, and are a way to beggar thy neighbor. That's why Sweden, Denmark and Switzerland had to go negative, too. It's the only way to wage economic warfare, now that tariffs are generally regulated by treaty.
13
Humorous, the smartest guys in the room are shown to be extremely stupid. First, they allowed their client banks to run wild with no supervision. Then when their clients got taken down they throw the money right and left(of course ignoring the people who are really suffering, the customers). They keep rates low so client banks can borrow then keep deposits(loan it back to) at the CB and make the carry trade. And now that that game is up the geniuses at the CB just don't know what to do. How about quit, disappear and never come back and bother/annoy us with your stupidity. And the NYTimes Editorial Board should quit with these vacuous, transparent defenses of the CB's and their long running stupidity.
7
Well they are only thought to be smart, they really know very little and that we listen to them means we are stupid.
1
Our era of low growth seems to have a number of common variables -- the concentration of individual wealth, the decline in real wages, and cash hoarding by corporations.
It seems to be a vicious cycle -- in order to hoard cash, corporations have to not invest in expansion, repress wages and pay few dividends. Of course with stagnant wages you have stagnant demand, which reinforces the lack of expansionary business investment. Wealthy individuals want to keep their wealth, so they support, if indirectly, wage stagnation and low growth/low inflation policies as well as discouraging expansionary business investment not seen as producing short term profit increases.
Where business has expanded, it seems to be in areas where rent-seeking behavior and business structures guarantee profitability. The panoply of business thinking seems focused on capture, lock-in and elimination of competition rather than anything which might invite competition or consumer choice.
The apparent increase in material prosperity achieved through low-cost manufacturing I think has been something of a mirage, a short term affect which has bought some complacency from the middle class about wages while only furthering.
Without a way to break these relationships, it's hard to see it getting better, and the political ramifications for economics will only make it worse.
It seems to be a vicious cycle -- in order to hoard cash, corporations have to not invest in expansion, repress wages and pay few dividends. Of course with stagnant wages you have stagnant demand, which reinforces the lack of expansionary business investment. Wealthy individuals want to keep their wealth, so they support, if indirectly, wage stagnation and low growth/low inflation policies as well as discouraging expansionary business investment not seen as producing short term profit increases.
Where business has expanded, it seems to be in areas where rent-seeking behavior and business structures guarantee profitability. The panoply of business thinking seems focused on capture, lock-in and elimination of competition rather than anything which might invite competition or consumer choice.
The apparent increase in material prosperity achieved through low-cost manufacturing I think has been something of a mirage, a short term affect which has bought some complacency from the middle class about wages while only furthering.
Without a way to break these relationships, it's hard to see it getting better, and the political ramifications for economics will only make it worse.
3
It is simple we have low growth in the US because of lack of opportunity in the US and excessive competition from foreign labor. Our trade supports the worlds economy instead of our own.
3
When asked if negative interest rates could happen here in the U.S. Janet Yellen could not give a straight "no." The same will happen here when banks force this upon the consumer.
3
As long as consumers are weighted down with debt there will be low demand. There will be less disposable income available to make business investment pay. Employees are consumers and need steady income to put back into the economy and negative interest rates will make saving in banks a negative proposition. This is a negative feedback loop.
3
I agree but consumer demand is a poor thing to base your US economy on, since it makes economic activity outside our country.
A constantly gowing economy is no longer a must. Susatinablity is what we should be looking for. The bankder however, all belong in jail. Austerity was theft in plain sight. Meanwhile, an interesting thing is happening. It costs little to run a business. They have tons of money and no place to put it. Production has never been more. There is an abundance of everything, including clean renewable energy coming daily online, especially in Europe. But the livelihood of the elite depends on scarcity, particularly of oil and gas. They hold their money tightly to their chests. They raise the costs of goods and food, gouging the people they have cut the wages of. The natives are getting restless. Yes, while the money is cheap lets improve things..spread the wealth around a little.
23
The economy, so-called, is not an amorphous blob. It is a highly complex system that comprises growth and decay, winners and losers, sustainable and unsustainable, financial fiction and physical reality.
Statistics combine apples with oranges and average veggies with cows and spit out a number that is utterly meaningless except to bankster and government parasites who focus on managing cash flow needed to service the debt bubble.
The real economy is not measured by growth statistics. That data is nothing but bankster propaganda.
Statistics combine apples with oranges and average veggies with cows and spit out a number that is utterly meaningless except to bankster and government parasites who focus on managing cash flow needed to service the debt bubble.
The real economy is not measured by growth statistics. That data is nothing but bankster propaganda.
7
This is just another example of how supply side economics doesn't work. Negative interest rates are a supply side technique that instead of encouraging investment through incentives, it attempts to encourage investment through penalty. Doesn't work. Never has. But yet, so called economic experts keep pushing it.
The common denominator in the worlds lagging economies is lack of consumer demand. People didn't just stop wanting stuff. They can't buy because they don't have enough money and they don't have enough money because of widespread inequality. They austerity job creator crowd continues to refuse to recognize this fact.
Low wages are the problem. After the prophet Ronnie and sidekick Margaret set the world on a path to inequality, the result has been global stagnation. We have a name for it. It's called deflation.
Once deflation sets in, it becomes intractable. Krugman has written extensively on this. Japan has suffered for decades from it. Europe is falling into its trap.
The way out is to stimulate demand and the only way to do that is to raise wages and increase government spending. Many trillions are locked up in private and corporate accounts that just sits there because it was never taxed. If the government had access to it, the funds could be put to work rebuilding the world's infrastructure and education systems. That would create jobs and put money in people's pockets they could spend which would create demand.
The common denominator in the worlds lagging economies is lack of consumer demand. People didn't just stop wanting stuff. They can't buy because they don't have enough money and they don't have enough money because of widespread inequality. They austerity job creator crowd continues to refuse to recognize this fact.
Low wages are the problem. After the prophet Ronnie and sidekick Margaret set the world on a path to inequality, the result has been global stagnation. We have a name for it. It's called deflation.
Once deflation sets in, it becomes intractable. Krugman has written extensively on this. Japan has suffered for decades from it. Europe is falling into its trap.
The way out is to stimulate demand and the only way to do that is to raise wages and increase government spending. Many trillions are locked up in private and corporate accounts that just sits there because it was never taxed. If the government had access to it, the funds could be put to work rebuilding the world's infrastructure and education systems. That would create jobs and put money in people's pockets they could spend which would create demand.
54
Investing money in roads and bridges etc sounds like a good idea, but the reality is almost all this money is wasted such as the $4 billion subway station recently built in Manhattan. Panama just spent $3 billion to expand the Panama Canal and yet, with the recession, there's not the shipping to fill it. America has built airports that have no air traffic, roads that have little traffic. California has spent a billion dollars on a high speed train without laying any track. Some of these projects amount to paying people to dig holes and paying other people to fill them in.
1
The way the EU was designed makes it impossible for any fiscal policy. There's limited funds to do so, and non-Euro members would also have to contribute, which would only result in more animosity within the project.
If one looks at economic growth over the long term, a rate of 1.6% is actually quite good. It is when politicians try to increase that rate of growth that they do stupid stuff.
The Europeans have their hands tied by an ideology forged in a different era of higher growth and higher inflation. They need to rid themselves of ideology and look objectively at their economy.
As in the United States, Europe has real problems: high economic inequality and under-spending on infrastructure. Worse, Europe under-spends on military defense in an era of enormous threats to their very existence. (See Russia and ISIS.)
European leaders should forget about ideologies and focus on solving the real problems.
The Europeans have their hands tied by an ideology forged in a different era of higher growth and higher inflation. They need to rid themselves of ideology and look objectively at their economy.
As in the United States, Europe has real problems: high economic inequality and under-spending on infrastructure. Worse, Europe under-spends on military defense in an era of enormous threats to their very existence. (See Russia and ISIS.)
European leaders should forget about ideologies and focus on solving the real problems.
17
1.6% is barely half the historic average for healthy Western economies. It is better than recession, but not really quite good.
Now a few get that growth, and more, while the rest of us got no growth for decades, and are still down from the recession.
It is easy for the few doing well to say that is good enough. The rest of us are not so well pleased with such slow growth.
Now a few get that growth, and more, while the rest of us got no growth for decades, and are still down from the recession.
It is easy for the few doing well to say that is good enough. The rest of us are not so well pleased with such slow growth.
2
So true. Any positive growth should sustain economies. The myth that only an economic model of perpetual growth is worth pursuing is unrealistic and an exercise in futility. The world's population can only consume so much, unless we are hell bent on continuing to multiply populations until we deplete the natural resources essential for our survival.
1
"In addition, persistently negative rates could well force European banks to raise fees on checking and savings accounts to recoup the rising cost of depositing reserves at the central bank."
Europeans don't use checks. The only exposure most Europeans have to checking accounts is via Hollywood films.
Europeans don't use checks. The only exposure most Europeans have to checking accounts is via Hollywood films.
5
Perhaps low rates encourages business investment. But, for people who believe they should save, it decreases consumption and demand. If you believe you need to save so you can retire, or you are retired, the lower rates go, the more you cut back.
6
It's about time you are waking up. Central bank policies are destroying the fact financial system as we know it. If the current policy track continues the economy will go over a cliff as the financial system freezes up.
3
Of course this is true! And of course most Americans have been tricked into putting their life savings in the Las Vegas Stock Market and lost it. And of course banks had lots to say about the 0% that they pay on savings vs. the 29% they charge on credit cards. IT'S A RIGGED SYSTEM. Can't anyone just tell the truth anymore?
13
Negative rates tell me the global central bankers/planners do not even remotely comprehend the negative economic effects of extreme protracted market intervention/manipulation.
The banksters were operating a Ponzi scheme which transmogrified into an existential crisis for the major global banks in 2008. Rather than face the music, they decided to double down and then double up again and set up a system of extraction to make the public feed them.
Nothing can save them, though.
This Ponzi scheme is mathematically certain to end exactly like all such schemes end, i.e., with a total collapse of the investments that are backed by the worthless paper they're conjuring into existence.
It's not a matter of if, but when...
The banksters were operating a Ponzi scheme which transmogrified into an existential crisis for the major global banks in 2008. Rather than face the music, they decided to double down and then double up again and set up a system of extraction to make the public feed them.
Nothing can save them, though.
This Ponzi scheme is mathematically certain to end exactly like all such schemes end, i.e., with a total collapse of the investments that are backed by the worthless paper they're conjuring into existence.
It's not a matter of if, but when...
9
Keynes is dead. Leave him buried. Ludwig Von Mises' Austrian economics is the path to prosperity.
What Europe, Japan and the USA have been doing is "pushing on a string."
We need tax cuts and less regulation to promote business investment.
We need Trump. We can't afford any more Democratic Party stupidity.
What Europe, Japan and the USA have been doing is "pushing on a string."
We need tax cuts and less regulation to promote business investment.
We need Trump. We can't afford any more Democratic Party stupidity.
4
But it's working so well in Kansas, and everywhere else it's been tried...
Such amazing prosperity...
But let's elect an ignorant, bumbling American fascist to finish the job.
Let's let him do for America and Europe what he did for his Atlantic City casinos. Yeah, that's the ticket...
Such amazing prosperity...
But let's elect an ignorant, bumbling American fascist to finish the job.
Let's let him do for America and Europe what he did for his Atlantic City casinos. Yeah, that's the ticket...
104
Trump is just there to help install the banksters' chosen puppet. If that were not obvious before, it should be now. Trump cannot save you...
15
I agree that Keynes is dead. But to say the Austrian economics is the "path to prosperity" is simply to substitute a religion with another.
At least Keynes once lived in order to die - Austrian economics was never alive, was stillborn (because of its own absurdness, not because it was never given a chance - there are a lot of Austrian bankers ruling important institutions like the WB, IMF etc.).
At least Keynes once lived in order to die - Austrian economics was never alive, was stillborn (because of its own absurdness, not because it was never given a chance - there are a lot of Austrian bankers ruling important institutions like the WB, IMF etc.).
6
I would address this editorial thusly.
It is a vile ,attempt to justify an economic system that creates misery when there is no excuse for any misery of deprivation. I would suggest that negative interest has nothing at all to do with growing an all too big and powerful economy and more to do with taming an economy that has been made far too important than is justified.
In the 1840s one million Irish peasants starved too death and millions more suffered grievous harm as a sacrifice to Ireland's food export economy which flourished during the starvation.
The young people in Europe's cities may not have jobs but the are well fed, well educated, well clothed, have 21st century healthcare and they have roofs over their heads.
We have evolved to where we have enough of everything so that all our children can enjoy rich rewarding lives and can be free from wont and the NYT tells us this is not good because a healthy growing economy is more important than the welfare of our people. Maybe America is getting the leadership it deserves rather than the leadership it needs.
America needs healthy educated children. It needs to clean up its environment. It needs more safe clean public spaces. Americans need to again learn to communicate with each other.
There is no profit in creating a better world, a better world does not mean a bigger economy it means respecting people for what they add to our lives not what they have in the bank.
A growing economy will not make our lives any better.
It is a vile ,attempt to justify an economic system that creates misery when there is no excuse for any misery of deprivation. I would suggest that negative interest has nothing at all to do with growing an all too big and powerful economy and more to do with taming an economy that has been made far too important than is justified.
In the 1840s one million Irish peasants starved too death and millions more suffered grievous harm as a sacrifice to Ireland's food export economy which flourished during the starvation.
The young people in Europe's cities may not have jobs but the are well fed, well educated, well clothed, have 21st century healthcare and they have roofs over their heads.
We have evolved to where we have enough of everything so that all our children can enjoy rich rewarding lives and can be free from wont and the NYT tells us this is not good because a healthy growing economy is more important than the welfare of our people. Maybe America is getting the leadership it deserves rather than the leadership it needs.
America needs healthy educated children. It needs to clean up its environment. It needs more safe clean public spaces. Americans need to again learn to communicate with each other.
There is no profit in creating a better world, a better world does not mean a bigger economy it means respecting people for what they add to our lives not what they have in the bank.
A growing economy will not make our lives any better.
88
Perhaps the world’s Central Banks and Governments should spend a little of their worry time on how to DIRECTLY help their human citizens. Instead of directly propping up their financial institutions and hoping that, somehow, the human citizens glean a few scraps.
Here in the United States of America, maintaining the infrastructure we already have in place while fully funding vocational and higher education tuition for the lower and middles classes would be a great investment and responsible place to start.
We don’t need grand plans for investment in new built infrastructure and other “innovative” policies. We have plenty known, extremely valuable programs and built structure in place that need maintaining that will keep public investment going for a long while. The private sector cannot address our national public infrastructure and vocational and higher education needs--only a national government can do that (sorry, all you government haters and Libertarians out there--like the public does not get skinned alive by the corporate world on a regular basis).
There is nothing wrong and no shame in maintaining what one has—let’s quit our national adolescent whining and get to it.
Michael Bain
Glorieta, New Mexico
Here in the United States of America, maintaining the infrastructure we already have in place while fully funding vocational and higher education tuition for the lower and middles classes would be a great investment and responsible place to start.
We don’t need grand plans for investment in new built infrastructure and other “innovative” policies. We have plenty known, extremely valuable programs and built structure in place that need maintaining that will keep public investment going for a long while. The private sector cannot address our national public infrastructure and vocational and higher education needs--only a national government can do that (sorry, all you government haters and Libertarians out there--like the public does not get skinned alive by the corporate world on a regular basis).
There is nothing wrong and no shame in maintaining what one has—let’s quit our national adolescent whining and get to it.
Michael Bain
Glorieta, New Mexico
52
> "Perhaps the world’s Central Banks and Governments should spend a little of their worry time on how to DIRECTLY help their human citizens"
Unfortunately Michael, this is exactly what they SHOULD NOT do
1) They will end up subsidizing inefficient behavior
2) These well-intended actions ALWAYS end up with programs/agendas where the 1%, always find a way to siphon off massive benefits for themselves. And they always work off of debt that is never paid off. Instead ala, the Economic-Hit-Man, these large debts always end up being 'forgiven' in a manner that allows the 1% to take advantage of underwater economies where they end up getting sweetheart pennies-on-the-dollar asset purchases, railroads, water-systems, electrical-systems, & etc. AND, they **ALWAYS** get the better end of the stick,
Unfortunately Michael, this is exactly what they SHOULD NOT do
1) They will end up subsidizing inefficient behavior
2) These well-intended actions ALWAYS end up with programs/agendas where the 1%, always find a way to siphon off massive benefits for themselves. And they always work off of debt that is never paid off. Instead ala, the Economic-Hit-Man, these large debts always end up being 'forgiven' in a manner that allows the 1% to take advantage of underwater economies where they end up getting sweetheart pennies-on-the-dollar asset purchases, railroads, water-systems, electrical-systems, & etc. AND, they **ALWAYS** get the better end of the stick,
We need the courage of transformational economic thinking and acting. Part of that courage would be making the public authorities the main creator of money rather than leaving it to privately owned banking systems that presently create some 95% of the money supply.
Since Irvin Fisher in the 1930s and the few remaining public banks in North Dakota, Alberta, New Zealand the issue of money creation and public banking is again an issue that is being discussed by several governments. Imagine infrastructure and climate change spending that is only limited by the imagination of the planners rather than shortage of funding! Sanders’ vision could be financed and Clinton’s economic program could become more alluring.
However, widespread public banking is not possible without global economic cooperation and the transformation of the unjust, unsustainable and, therefore, unstable international monetary system. One way of bringing this transformation about is suggested in Verhagen 2012 "The Tierra Solution: Resolving the climate crisis through monetary transformation" where its conceptual, institutional, ethical and strategic dimensions are presented. It is updated at www.timun.net.
Since Irvin Fisher in the 1930s and the few remaining public banks in North Dakota, Alberta, New Zealand the issue of money creation and public banking is again an issue that is being discussed by several governments. Imagine infrastructure and climate change spending that is only limited by the imagination of the planners rather than shortage of funding! Sanders’ vision could be financed and Clinton’s economic program could become more alluring.
However, widespread public banking is not possible without global economic cooperation and the transformation of the unjust, unsustainable and, therefore, unstable international monetary system. One way of bringing this transformation about is suggested in Verhagen 2012 "The Tierra Solution: Resolving the climate crisis through monetary transformation" where its conceptual, institutional, ethical and strategic dimensions are presented. It is updated at www.timun.net.
2
Good luck getting the plutocrats to stop playing all governments against each other.
2
> "We need the courage of transformational economic thinking and acting"
This is EXACTLY what we don't need. The only 'transformational' thinking that can be **sold** to the public/voters is a version of one of two disasters
Both the delusional Left approach {Sanders} and the delusional Right approach {SupplySide/TrickleUp/LafferCurve), will end up completely destroying what little is left of our economy
** Both strategies will lead to Debt-Meltdown, one by unfunded Tax-Cuts, and the other by unfunded Welfare-State
** Stein's Law about "What can't continue forever, won't" sooner or later will FORCE a reckoning. The only solutions are devaluation or default.
Small countries like Mexico can devalue their currency once debt service becomes impossible, and bailouts are no longer available: Mexico is the classic model, Greece may be the next one, for them it will come in the form of being kicked out of the Euro
Large Countries like the US & Russia cannot devalue {although China may be able to, don't think they aren't cooking their books, to make their economy look much stronger than it really is} AND when a big country defaults, it is a worldwide disaster, 10x worse than 2008, probably worse than 1929
** What we NEED is basic solid sensible Economics, Eisenhower, Coolidge, GHWB. We need a 20-30 year plan to pay down our debt, and begin living basically within out national means. But NOBODY will accept that
** Our Economy has been completely destroyed by "OPTIMISTS' for 35yrs
This is EXACTLY what we don't need. The only 'transformational' thinking that can be **sold** to the public/voters is a version of one of two disasters
Both the delusional Left approach {Sanders} and the delusional Right approach {SupplySide/TrickleUp/LafferCurve), will end up completely destroying what little is left of our economy
** Both strategies will lead to Debt-Meltdown, one by unfunded Tax-Cuts, and the other by unfunded Welfare-State
** Stein's Law about "What can't continue forever, won't" sooner or later will FORCE a reckoning. The only solutions are devaluation or default.
Small countries like Mexico can devalue their currency once debt service becomes impossible, and bailouts are no longer available: Mexico is the classic model, Greece may be the next one, for them it will come in the form of being kicked out of the Euro
Large Countries like the US & Russia cannot devalue {although China may be able to, don't think they aren't cooking their books, to make their economy look much stronger than it really is} AND when a big country defaults, it is a worldwide disaster, 10x worse than 2008, probably worse than 1929
** What we NEED is basic solid sensible Economics, Eisenhower, Coolidge, GHWB. We need a 20-30 year plan to pay down our debt, and begin living basically within out national means. But NOBODY will accept that
** Our Economy has been completely destroyed by "OPTIMISTS' for 35yrs
DUH. However, for all of those who want to invest in the infrastructure...... so much stupidity masquerades as investment and The Nytimes can' even be bothered fo follow the MYA and it's subway projects.. an expensive and meaningless one took place at 168th ofr granite or just clean the concrete-- infact granite should never be used for outdoor walkways,, another thing the MTA does..., the graffiti from the elevators has not been removed... just a waste of $$$ and they don't don't want to clean.. private company, powe washing, does nothing exept make a mess... Whatever... stupid is as stupid as does and most of it is stupid.. so lower taxes already and lower the wages of useful people paid wuing taxpayer $$... UNBELIEVABLE... both the press and the politicians... Trump and Clinton are just eye candy.. and a distraction... from real corruption...
2
Low interest rates are not the answer.
The answer is to send the austerity advocates into political exile, and to begin a worldwide experiment in bubble-up economics.
We've all tried trickle down now for multiple decades, and any objective person without a financial interest in not facing facts knows that it doesn't work as advertised.
Austerity is not answer. Smart investment in national economies in the answer. Paying workers fair wages worldwide is the answer.
Smart investment in national economies will bring a people together, not set them at each others' throats.
Continuing this self-destructive race to the bottom is not the answer, supporting workers right to a decent living throughout the world is the answer.
If economies expect to grow, then workers worldwide need to be paid enough to comfortably consume.
This isn't brain surgery, this is stakeholder capitalism 101.
The answer is to send the austerity advocates into political exile, and to begin a worldwide experiment in bubble-up economics.
We've all tried trickle down now for multiple decades, and any objective person without a financial interest in not facing facts knows that it doesn't work as advertised.
Austerity is not answer. Smart investment in national economies in the answer. Paying workers fair wages worldwide is the answer.
Smart investment in national economies will bring a people together, not set them at each others' throats.
Continuing this self-destructive race to the bottom is not the answer, supporting workers right to a decent living throughout the world is the answer.
If economies expect to grow, then workers worldwide need to be paid enough to comfortably consume.
This isn't brain surgery, this is stakeholder capitalism 101.
63
Fundamentally, interest rates and other monetary policy do not erase the systemic problems that create poor economies.
Europe cannot pretend away the global labor market any more than America can. Nor can they pretend away the impact of technology.
We tend to think of the EU as Germany and France, but it is Greece and Lithuania, Poland, Romania and Croatia too, which have lots more labor than demand for goods.
The weakness in economies comes from the same drivers as in the US: there are more people than there are good jobs. Technology and global wage competition are affecting European household wages, too. Germany has a strong manufacturing center, but Polish workers,as an example, are flocking to other EU countries - especially Great Britain - looking for work. It limits the German market. Affluent countries are saturated, and countries with demand for goods, don't have the wealth to buy them.
Conservatives will tell you that job creators are over taxed and over-regulated, and that is why they won't invest in local jobs. But in reality, they can make any business decision cheaper by manufacturing in Asia, which has fewer regulations and dirt cheap labor, which creates a cheap enough good to sell here, in the EU or in Asia.
Leaders in neither Europe nor the US have figured out how to thrive in that reality.
Europe cannot pretend away the global labor market any more than America can. Nor can they pretend away the impact of technology.
We tend to think of the EU as Germany and France, but it is Greece and Lithuania, Poland, Romania and Croatia too, which have lots more labor than demand for goods.
The weakness in economies comes from the same drivers as in the US: there are more people than there are good jobs. Technology and global wage competition are affecting European household wages, too. Germany has a strong manufacturing center, but Polish workers,as an example, are flocking to other EU countries - especially Great Britain - looking for work. It limits the German market. Affluent countries are saturated, and countries with demand for goods, don't have the wealth to buy them.
Conservatives will tell you that job creators are over taxed and over-regulated, and that is why they won't invest in local jobs. But in reality, they can make any business decision cheaper by manufacturing in Asia, which has fewer regulations and dirt cheap labor, which creates a cheap enough good to sell here, in the EU or in Asia.
Leaders in neither Europe nor the US have figured out how to thrive in that reality.
19
There are more people than good jobs. There is also much that needs doing that goes undone. It is an easy match -- give people jobs doing those things.
What needs doing centers on what people don't have. We've got lots of people who are poor. They need both jobs, and the things they'd buy with income. It is not all about vanity projects that waste money, it is people's real needs.
It is the job of government to get things running smoothly. We've had a failure of governance, as things go undone while people are unemployed.
What needs doing centers on what people don't have. We've got lots of people who are poor. They need both jobs, and the things they'd buy with income. It is not all about vanity projects that waste money, it is people's real needs.
It is the job of government to get things running smoothly. We've had a failure of governance, as things go undone while people are unemployed.
2
There are a number of reasons for the continuing downturn.
1. The Euro - it prevents weaker economies from devaluing their currencies forcing them to wait for much slower mechanisms to rebalance their economies with against other countries.
2. German Economists. The most powerful nation in Europe has a disfunctional view of economics (see Krugman, P.) seeing it as a morality play. They also have a pathological fear of inflation, putting a brake on stimulus spending among other Euro countries which has lead to years of...
3. Austerity. Consumers who have had their standard of living stalled are not going to spend, which has crippled the most important engine of the European economies. One of the main causes of this is...
4. Inequality. Weak policy-making over the last decades has allowed a concentration of capital in the hands of the few. These individuals are far less likely to react to ECB actions - including from initiatives like QE and negative interest rates.
5. Inefficiencies. Not among the general population - productivity continues to increase - but there has been an explosion of rent seeking, monopolistic practices, and destructive (and economically useless) activities e.g. less than 10% of currency trading has now anything to do with with actual trade - it is just casino activity.
6-1,000,000 There are other issues - aging population (Italy has one of the lowest birth-rates on the planet), political stagnation, border issues, increasing nationalism, etc. etc.
1. The Euro - it prevents weaker economies from devaluing their currencies forcing them to wait for much slower mechanisms to rebalance their economies with against other countries.
2. German Economists. The most powerful nation in Europe has a disfunctional view of economics (see Krugman, P.) seeing it as a morality play. They also have a pathological fear of inflation, putting a brake on stimulus spending among other Euro countries which has lead to years of...
3. Austerity. Consumers who have had their standard of living stalled are not going to spend, which has crippled the most important engine of the European economies. One of the main causes of this is...
4. Inequality. Weak policy-making over the last decades has allowed a concentration of capital in the hands of the few. These individuals are far less likely to react to ECB actions - including from initiatives like QE and negative interest rates.
5. Inefficiencies. Not among the general population - productivity continues to increase - but there has been an explosion of rent seeking, monopolistic practices, and destructive (and economically useless) activities e.g. less than 10% of currency trading has now anything to do with with actual trade - it is just casino activity.
6-1,000,000 There are other issues - aging population (Italy has one of the lowest birth-rates on the planet), political stagnation, border issues, increasing nationalism, etc. etc.
14
The notion of Interest rates is not causi sui. It is only a manifestation of a crisis deeper than any of its parts. Overall Profitability has slowed down since 1997 despite gains in some sectors (or the transference of values from many to few - from production in the former third world to finances). Now we have stagnation. The causes are deeper than explained here and are related to globalization reaching its limits. The crisis of the 70s was addressed by globalization. Now it has run it course and the whole mechanism of production and distribution of goods and capital is stuck again. It is time to rethink the whole model. Perhaps one where private profit is out of the question and has no inequality as a consequence.
1
We are not investing here in the US because Republicans have been trying to cause Obama to fail for eight long years. What is Europe's excuse?
50
Europe's excuse is a dysfunctional EU government, one that handles periods of growth but can't handle periods of recession.
1
No, governments should not borrow money to finance investments. It should print it. The taboo against governments printing money should finally be questioned.
As for government investments, I believe that the article is too restrictive when it limits them to infrastructure. Sure, the US has a backlog in that area, but infrastructure spending is not a solution for everything. Remember that Japan ended up building bridges to nowhere without doing much for economic growth.
True government investment is broad and looks for the best results. It might be in education. It might be in stimulating broadband internet. It might be in finding and helping promising new companies and industry branches. It might even be in finding better ways to take care of a graying population.
As for government investments, I believe that the article is too restrictive when it limits them to infrastructure. Sure, the US has a backlog in that area, but infrastructure spending is not a solution for everything. Remember that Japan ended up building bridges to nowhere without doing much for economic growth.
True government investment is broad and looks for the best results. It might be in education. It might be in stimulating broadband internet. It might be in finding and helping promising new companies and industry branches. It might even be in finding better ways to take care of a graying population.
25
Money has to be two things: A means of exchange and a store of value. Simply "printing" money out of thin air isn't a free lunch. Once moneys use of a store of value is ...debased, it collapses and everything valued against it becomes equally if not more ...debased.
Don't believe me? Check out Venezuela, Argentina, Zimbabwe and every other nation on earth that decided to print money out of thin air to buy "things."
Don't believe me? Check out Venezuela, Argentina, Zimbabwe and every other nation on earth that decided to print money out of thin air to buy "things."
2
Casey...or, go back to the example of the German Weimar Republic. back then, the head of the German central bank bragged about the new, high speed printing presses with which to print currency more quickly.
1
Both Casey and Patrick are wrong. While theoretically. excessive inflation could be produced by printing too much money, as James K. Galbraith has shown, since WWI excessive inflations always had other causes. The inflation caused the printing of money, not the other way around.
Weimar. Losing the war, reparations in kind, and the French seizing of the Ruhr industries led to a large rise in prices which caused the government to print a lot of money.
Venezuela - General mismanagement and the crash in the price of oil cause prices to rise.
Zimbabwe - Taking the farms from those who knew how to run them was the primary cause here.
Remember
P = (MV)/S
where P is prices , M is the amount of money in the economy, V measures the frequency that money changes hands usefully, and S is the dollar amount of the amount of stuff, goods and services, we can produce in some time period.
Inflationistas cannot understand an equation with more than 2 variables. To them it looks like:
P = M.
You print more money, you debase the currency, prices go up. End of story. Of course this might happen if S and V remain constant, but in point of fact, the causes of all excessive inflations since WWI has been S getting too small--shortages, The anchovy harvest failed in 1972. There was a shortage of livestock feed. Then came the oil embargo. Prices rose.
Weimar. Losing the war, reparations in kind, and the French seizing of the Ruhr industries led to a large rise in prices which caused the government to print a lot of money.
Venezuela - General mismanagement and the crash in the price of oil cause prices to rise.
Zimbabwe - Taking the farms from those who knew how to run them was the primary cause here.
Remember
P = (MV)/S
where P is prices , M is the amount of money in the economy, V measures the frequency that money changes hands usefully, and S is the dollar amount of the amount of stuff, goods and services, we can produce in some time period.
Inflationistas cannot understand an equation with more than 2 variables. To them it looks like:
P = M.
You print more money, you debase the currency, prices go up. End of story. Of course this might happen if S and V remain constant, but in point of fact, the causes of all excessive inflations since WWI has been S getting too small--shortages, The anchovy harvest failed in 1972. There was a shortage of livestock feed. Then came the oil embargo. Prices rose.
1
Seriously NYT. You are writing about the consequences of negative rates in Europe and not
the results of what Bernanke and his ilk have been perpetrating here since 2008?
Get your editorial heads out of the sand. You highlight your concerns for Europe and the rape of savers and seniors is alive and well here?
Really? Guess the NYT is just another deadbeat or debtor feasting on the ftee money of the prudent whose retirements have been ruined by the Fed.
the results of what Bernanke and his ilk have been perpetrating here since 2008?
Get your editorial heads out of the sand. You highlight your concerns for Europe and the rape of savers and seniors is alive and well here?
Really? Guess the NYT is just another deadbeat or debtor feasting on the ftee money of the prudent whose retirements have been ruined by the Fed.
80
Forget about 2008 -- it began under Bill Clinton and Greenspan if not under Nixon...
2
The life insurance and pension industries are crumbling under perpetual ZIRP. All their investment income projections are unmet.
5
Well, few of us have pensions anyway; they now have us all in 401Ks. This is so those who dedicate their lives to watching and manipulating the market can conduct regular bloodletting out of hapless retirement portfolios into their own. Like watching lambs get sheared, watch the market indulge in frequent rounds of profit taking from its captive sheep, the 401Ks of those lucky enough even to have that retirement vehicle.
1
This is an astonishing editorial from the NY Times. The Times has been front and center these past few years in extolling the US Federal Reserves's zero interest rate policy and subsequent three rounds of "quantitative easing". The Times continues to advocate no further short term interest rate hikes by the Fed. Yet, the Times now warns of the "dangers" of "negative" interest rates? Does the Times believe the Fed's policies are much different?
Former Fed governor Richard Fisher blatantly admitted in Jan. 2016 that the Fed's ZIRP and QE policies were designed to first jump start Wall St. then maintain the sharp rise in equities after the 2008 financial meltdown. The Fed held out the slim hope that there would be a "trickle down" effect to Main St. But trickle down never worked under Reagan and it hasn't worked again. Instead, ZIRP and QE has resulted in the creation of trillions of dollars of bonds that are parked at Wall St. investment banks and not circulating through the economy. There is no "velocity" or multiplier effect to that money. It just adds to the Streets esoteric financial creations. Prudent savers, particularly older people, have lost trillions in interest due to ZIRP, that money instead being transferred to Wall St. Just think of the effect of trillions of dollars in interest circulated through the economy along with the tax payment on that interest. All that interest has been foregone these past 8 years.
Maybe the Times is finally getting it.
Former Fed governor Richard Fisher blatantly admitted in Jan. 2016 that the Fed's ZIRP and QE policies were designed to first jump start Wall St. then maintain the sharp rise in equities after the 2008 financial meltdown. The Fed held out the slim hope that there would be a "trickle down" effect to Main St. But trickle down never worked under Reagan and it hasn't worked again. Instead, ZIRP and QE has resulted in the creation of trillions of dollars of bonds that are parked at Wall St. investment banks and not circulating through the economy. There is no "velocity" or multiplier effect to that money. It just adds to the Streets esoteric financial creations. Prudent savers, particularly older people, have lost trillions in interest due to ZIRP, that money instead being transferred to Wall St. Just think of the effect of trillions of dollars in interest circulated through the economy along with the tax payment on that interest. All that interest has been foregone these past 8 years.
Maybe the Times is finally getting it.
129
Monetary policy addresses how much money there is, and fiscal policy addresses how fast money changes hands. Economic product per unit of time is the amount of money divided by the length of time an average unit of currency stays in an account. This is Ohm' s Law of economics.
1
Trickle down from the rich old coots of the 1% who suffer prostrate problems!
This is exactly right. Without modest returns on savings (in safe CDs and savings accounts) the vast middle class that makes this economy (as opposed to the few who try to manipulate it from the finance industry) knows to tighten its belt. And everyone (businesses and consumers) gets frightened (not excited) by too low interest rates. Yet the big fools say to push on (to paraphrase Pete Seeger). Whether growth is ultimately a good model or not, I don't know. But the evidence is that jiggering low interest rates to "jump start" economies scares consumers and businesses. Scared people save their money, even under mattresses.
1
Negative interest rates are an act of desperation, a signal that traditional policy options didn't work and new ideas need to be explored, trying to prevent Europe from a slide back into deflation or a spiral of falling prices.
However, negative interest rates are simply a distraction from a deeper analysis of what went wrong – and what continues to go wrong. We now have fully unhinged fiat economics. The pyramid scheme of created and unlimited debt dictates that the true value of the money is zero, and the systemic risk means negative rates are justified. Today, economics is a pseudo-science used by the 1% to convince the 99% that austerity is the only game in town. There's always a beneficiary. And the ones who caused this mess in the first place are benefitting from the mess they caused.
However, negative interest rates are simply a distraction from a deeper analysis of what went wrong – and what continues to go wrong. We now have fully unhinged fiat economics. The pyramid scheme of created and unlimited debt dictates that the true value of the money is zero, and the systemic risk means negative rates are justified. Today, economics is a pseudo-science used by the 1% to convince the 99% that austerity is the only game in town. There's always a beneficiary. And the ones who caused this mess in the first place are benefitting from the mess they caused.
111
When most things on store shelves to buy are made in low wage Asia. extra consumer spending creates more jobs in low wage Asia not here or in Europe -- that is assuming that the unemployed factory workers have any money to spend. If by chance consumer spending is artificially generated, via unemployment checks, it would stimulate more investment in production facilities in Asia not here or in Europe. No brainer, eh what?
Yes, governments could stimulate consumer earnings and spending by investing in more bridges and airports, etc. Would that however, get to the root of the problem or merely cover it temporarily with white wash? Is the basic problem Asian mercantilism. imbalance in trade?
Yes, governments could stimulate consumer earnings and spending by investing in more bridges and airports, etc. Would that however, get to the root of the problem or merely cover it temporarily with white wash? Is the basic problem Asian mercantilism. imbalance in trade?
10
Zero percent interest rate monetary policy pays nothing for the time value of money. That is why it doesn't move money.
1
Spot on!
The global economic circulation is broken and zero bound rates and deficit spending are only a temporary novocaine to blunt the untreated trauma.
The global economic circulation is broken and zero bound rates and deficit spending are only a temporary novocaine to blunt the untreated trauma.
After years and year of lower and lower interst rates it is a bit late for advocats of such low rates - suddenly to realize that 'cheap' money could be dangerous.
As the worry 'among many experts - that banks, institutional investors and even individuals desperate for higher returns have been seduced into taking foolish risks - was already there in 2005.
And it seems that especially US economists didn't learn enough from the bust of 2008. And now as the US has become the major 'save haven' for the speculators of this world -(aka - 'the money slosh) the temptation 'to make big investments overseas, driving up the price of stocks and bonds in the United States and Asia and creating bubbles that expose the global financial system and economy to another crisis - is just the logical consequence of 'never learning'
Which brings us to the advice for European countries to invest more in infrastructure. It would be a good advice if 'sustainable' would be added - as unsustainable infrastructure investment like in European countries like Spain lead to the same economical disaster the Housing Bubble caused in the US.
As the worry 'among many experts - that banks, institutional investors and even individuals desperate for higher returns have been seduced into taking foolish risks - was already there in 2005.
And it seems that especially US economists didn't learn enough from the bust of 2008. And now as the US has become the major 'save haven' for the speculators of this world -(aka - 'the money slosh) the temptation 'to make big investments overseas, driving up the price of stocks and bonds in the United States and Asia and creating bubbles that expose the global financial system and economy to another crisis - is just the logical consequence of 'never learning'
Which brings us to the advice for European countries to invest more in infrastructure. It would be a good advice if 'sustainable' would be added - as unsustainable infrastructure investment like in European countries like Spain lead to the same economical disaster the Housing Bubble caused in the US.
4
poc, your last paragraph makes a good point although I hate the word "sustainable". Nothing last forever. How about "sensible" or "reasonable"?
BTW the stupid investment in Spain was mostly by private companies and supported by private banks, not the government. The government only got involved when it was forced to shore up the private banks by other countries with names beginning with G.
BTW the stupid investment in Spain was mostly by private companies and supported by private banks, not the government. The government only got involved when it was forced to shore up the private banks by other countries with names beginning with G.
1
Another part of the world that the USA should stop interfering in. But it won't. Whatever the megacorporations and Wall Street ask for by means of their lobbyists, Congress will provide. Right on over the heads of the little people who pay the taxes, of course. Remember the purported EU trade pact that sputtered to a halt a few months back? We'll see it again after the November elections.
9
In the meantime the income of old people who saved for their old days has been given a blow. They are the ones paying for the failures of big banking.
They have no lobby going on the barricades to fight against the damage. This is the moral bankruptcy of Western countries. The answer is less spending and an endangering of world trade. A nice circulus vitiosus. But who cares?
They have no lobby going on the barricades to fight against the damage. This is the moral bankruptcy of Western countries. The answer is less spending and an endangering of world trade. A nice circulus vitiosus. But who cares?
28
Generating growth by major investment in infrastructure may work in the USA. However, in Europe there is a so much better infrastructure that it is questionable whether there is sufficient scope to generate economic growth through focus on infrastructure investment. Redistributing wealth to reduce inequality and raise the level of income of lower classes by incentivise initiative and hard work through fiscal management may be a better way.
18
I have witnessed this personally in Switzerland in the past year: despite the negative interest rates, things seem to have only gotten worse.
The criteria that banks require for mortgages have become much stricter, to the point that even with a 20% downpayment it has become very difficult to obtain any mortgage unless you are an extremely high earner with lots of cash at hand. Business loans have become equally difficult to obtain: last year I had the opportunity to acquire a set of highly rentable properties worth 1.6M dollars together with a business partner; with a 20% downpayment the rents would have fully repaid the mortgage and provided a reasonable return on investment. Since the investment was fully collateralized by the value of the buildings themselves, you would have expected the banks to jump at the opportunity of making some safe money, wouldn't you? No chance. Not a single bank would finance this business, and we had to give up the project.
If even in the face of negative interest rates the banks are unwilling to lend money for the safest, low-risk real estate investments, what hope is there for generating growth? Basically the banks' message is: we won't take any risks and we'd rather sit on a pile of cash that slowly burns away at negative interest rates rather than lending it out to an entrepreneur.
As long as the mentality of banks remains so obtuse and risk-averse, there is no hope for growth in Europe.
The criteria that banks require for mortgages have become much stricter, to the point that even with a 20% downpayment it has become very difficult to obtain any mortgage unless you are an extremely high earner with lots of cash at hand. Business loans have become equally difficult to obtain: last year I had the opportunity to acquire a set of highly rentable properties worth 1.6M dollars together with a business partner; with a 20% downpayment the rents would have fully repaid the mortgage and provided a reasonable return on investment. Since the investment was fully collateralized by the value of the buildings themselves, you would have expected the banks to jump at the opportunity of making some safe money, wouldn't you? No chance. Not a single bank would finance this business, and we had to give up the project.
If even in the face of negative interest rates the banks are unwilling to lend money for the safest, low-risk real estate investments, what hope is there for generating growth? Basically the banks' message is: we won't take any risks and we'd rather sit on a pile of cash that slowly burns away at negative interest rates rather than lending it out to an entrepreneur.
As long as the mentality of banks remains so obtuse and risk-averse, there is no hope for growth in Europe.
58
You would have to be an idiot to not see the sense in spending on infrastructure with rates as low as have been since Obama has been POTUS.
8
With Germany effectively running the Eurozone and treaty limits on debt versus GDP ratio, there is no way for Member States to take individual initiative to increase demand through government spending. The rules must be changed or the population will rise up in some way to oust the elites.
3
Some persist in the excuse that weak consumer demand is the cause of dangerously low growth, here and in Europe. While negative interest rates are the desperation-move of central banks that have sought to jump-start economies first using classical then decidedly NON-classical tools, and exhausted them all with little impact, many persist in this notion that business investment is enslaved to visible consumer demand.
Consumer demand does not spontaneously generate, with business investment merely a trailing effect. Business investment can CREATE consumer demand if new products and services are sufficiently compelling to cause consumers to want them more than to minimize debt. This shouldn’t surprise when we see the latest smartphones in the hands of our lowest earners almost as ubiquitously as they are in the hands of our more prosperous.
But in order to compel the business investment that CREATES the new products and services, which creates more jobs, which increases competition for skills, which increases real wages … the rewards for risking capital must be robust. And they’re not. THAT’S the problem, not that desperate central banks that were never designed to manipulate economies with week-beer monetary tools can’t seem to do so.
Western economies are over-regulated and over-taxed. With every new tax and every new regulation we reduce the rewards to risking capital. The result? Capital is not being put at risk.
Consumer demand does not spontaneously generate, with business investment merely a trailing effect. Business investment can CREATE consumer demand if new products and services are sufficiently compelling to cause consumers to want them more than to minimize debt. This shouldn’t surprise when we see the latest smartphones in the hands of our lowest earners almost as ubiquitously as they are in the hands of our more prosperous.
But in order to compel the business investment that CREATES the new products and services, which creates more jobs, which increases competition for skills, which increases real wages … the rewards for risking capital must be robust. And they’re not. THAT’S the problem, not that desperate central banks that were never designed to manipulate economies with week-beer monetary tools can’t seem to do so.
Western economies are over-regulated and over-taxed. With every new tax and every new regulation we reduce the rewards to risking capital. The result? Capital is not being put at risk.
12
@Richard
"Western economies are over-regulated and over-taxed."
Preposterous.
The effective tax on individuals of wealth are lower than that of working people as has be shown and documented in a thousand ways. Buffet did not lie about it.
Large businesses and multi-nationals pay effective zero in tax in the U.S. Check Boeing for example.
The solution here is Keynesian. Stimulate. Step on the gas and deficit spend. Don't tromp on the brakes.
"Western economies are over-regulated and over-taxed."
Preposterous.
The effective tax on individuals of wealth are lower than that of working people as has be shown and documented in a thousand ways. Buffet did not lie about it.
Large businesses and multi-nationals pay effective zero in tax in the U.S. Check Boeing for example.
The solution here is Keynesian. Stimulate. Step on the gas and deficit spend. Don't tromp on the brakes.
204
overtaxed? horse manure. we have the lowest effective rates in the world. Then add in the scam of transfer pricing gimmicks keeping cash overseas.
159
I refute your comment thus:
Kansas
Kansas
71