Coronavirus Fears Are Driving Interest Rates Down, a Bad Omen for the Economy

I'm not a household that responds to interest rates, though it would be nice to earn more on the savings account. I understand that not all households that like that, and that firms are far more sensitive to interest rates, but I wonder if more and more households are like mine. We already have a mortgage and that rate is not going lower. We buy things as needed but do not buy on credit and do not rush to increase spending if borrowing becomes cheaper or cut spending it it becomes pricier.

We can say of The Fed’s tools what Gertrude Stein once said of Oakland, CA: there’s no there there. No matter how much more monetization is flushed into the global economy at this point, the serious problem worldwide is business indebtedness. Businesses small and very large are in a very nearly upside down state with the massive borrowing they have engaged in to stay afloat and profitable since Great Depression 2. This new downturn — which may in fact be far faster, steeper and prolonged than the one in 2008 — could easily wipe much of the business world out. This includes energy, transportation and communications industries, as well as agricultural and manufacturing. Important functions necessary to the present civilization’s survival could be left with nothing to support them. It may in fact be necessary to nationalize or even internationalize ownership of these businesses, to keep them running despite an absence of profitability. They will all be turned into public utilities, grown or shrunk to meet demand. Whether or not they make a profit during any quarter will no longer be relevant, at all. This will of course topple the entire banking and financial industries, which in turn will have to be turned into something like a Global Credit Union. Prepare for huge changes to our world!

Economic crises happen when the normally expected chain of timely payments breaks down, leading to a chain reaction of defaults. One does not want this to happen because of an overblown health scare.

The most foolish thing the Fed could do right now would be to squander the remaining 150 basis points in their possession. The Fed missed the opportunity over the past eleven years, in the midst of a bull market and strong economy, to raise the prime rate to levels that would restock their arsenal to deal with a real financial crisis. At the same time, broken congress failed in the same time period to drive down the national debt, instead choosing to let it go up an up and eventually give a tax break to the wealthiest Americans which further accelerated US insolvency. There has not been an adult in the room for some time. A crash of epic proportions was foreshadowed this past week; it is no longer a question of if but when it will come to fully to pass. For those with ears to hear, let them hear.

But I thought Ludlow had this figured out, as well as the pandemic, when he advised us all to buy more stocks as they look cheap to him.

Whenever I start to hear a long stream of economic jargon speak I translate it as saying, “No one wants the party to end, but the longer the party the deeper the hangover.”

Interest rates drop, wonderful news for all Americans.

Aw shucks, I just bought that mattress, now I'll have to cut a hole in it for next month's rent. /s

Tell this to Trump and the Fed.

Adam Smith's Invisible Hand of the Marketplace is a democrat.

Well if monetary stimulus won't work, the solution is to use fiscal stimulus. Doh. Yawn.

If the reaction to an event like the coronavirus is to cut interest rates, a completely inappropriate response, then what will happen when the sustained effects of climate change impact broad sections of the country and economy? These impacts won't go away or get better. The coronavirus will burn out at some point and disappear from our memory and when it does we will be left with huge deficits that will erode the credibility of the US economy. Is this what trump means by making America great again?

It would see that preparedness would have helped blunt the impact of this virus. But, with a party in charge that does not believe in science, we were woefully ill prepared. The consequences will trickle into the election cycle which may be the virus' gift to us.

Cutting interest rates absolutely will not encourage me to spend more and spur the economy. In fact, it will do the exact opposite. Finally two years ago I was earning interest on my meager savings and my emergency funds and was looking forward to a more relaxed budget. Now with interest rates cut in half since then and talk of even lower rates, it's time to tighten the old belt again.

Physics teaches one to think in terms of conservation laws. For something to happen, its opposite must also happen too. Such insights pop up even in accounting, where double-entry book-keeping was invented to keep track of it.

No offense but economists have been pointing out the risk for years now. Myself included. You can't cut taxes, increase the deficits and lower interest rates in a time of supposed prosperity. You expend all your economic counter-measures for when an external economic shock actually hits the global economy. In this case, pandemic. The United States is callously unprepared for the disruption. Think of it this way. The United States is a ship that wasted all its fuel pleasure yachting. We're now at war with a global crisis and we don't have any fuel. That's the reality to which Wall Street is responding. We're dead in the water. Productivity will go down. Investors are simply speculating on how much, when and where. Everybody loves stock market speculation. The economy is obviously in great hands. Fact is: The yield curve has been trying to invert for the better part of a year now. A clear signal we're headed towards recession. Everyone knew things were too good to be true. A combination of politicized fiscal and monetary policy helped keep things afloat... until now. We now don't have adequate fiscal or monetary policy adequate to a risk we don't understand. We're going to sink. By definition, GDP is a measure of productivity. By definition, pandemic will reduce productivity. Therefore, GDP must go down. We call declining GDP recession.

When Ronald Reagan took office in 1981 the ten year treasury rate was 13.4%. When Reagan is accorded hero status I like to point out how much the Fed was able to create his blooming economy easing interest rates ( although the 15% high was in mid 1981 ). We have a trillion dollar deficit and rates at near historic lows. Not many options available for Trumps's crack team.

What is next ? Are they going to start paying people to accept money and invest it in the stock market ???

Please America, don’t panic, the Republicans always have the same solution to everything: They will simply cut taxes for the rich and let the wealth trickle down to everyone else. I’m sure that somewhere in the White House, this is being discussed. It’s probably first on the agenda after Pence’s Corona-Virus-prayer-circle.

Not to worry. We have a brilliant businessman at the helm. He’s ‘Tariff Man,’ remember? Wait a sec, looks like tariffs are just a popgun - this rolling pandemic just dropped a nuclear warhead on international trade. May as well put the popgun back in the toy chest. Well then, you can lower interest rates... whoa, not much room to move there. Lower taxes and borrow like crazy... whoa, already did that, and the deficit has just blown past $1 trillion, with ‘full employment’ and an economic expansion supposedly underway. [Granted, manufacturing has been in decline all along, wages pretty much stagnant — and the market has been airborne on bloated valuations, stock buybacks and speculation, fueled of course by deregulation and massive tax cuts]. Well ok, if that doesn’t work, you use the patented super duper very strong fantastic Trump Silver Bullet: stiff your creditors, workers and contractors; declare bankruptcy; make sure you’ve got a golden parachute and foist the pain off on everyone else. ‘Whaddya mean the President of the United States can’t do that? I have an absolute right! It sez so right there in the Constitution. Ask William Barr, he read the thing, he’ll tell ya.’

And the FED started QE4 in Oct ‘19 to boost the market and salve Trumps feelings. Bad play feeding a bubble. Look next to all the supply chain collapses, reduced earnings, shrinking market caps, lay-offs, increased defaults, and increased unemployment. Looking for a fun ride, at least the cost of manual labor for home renovations will become more affordable.

All currencies derive their underlying value from the option to defer one's own spending for steady income in the form interest from a borrower. This is the essence of capitalism. If one wants to maintain the value of money constant, it is not practical to try to affect employment rates by tinkering with interest rates. Money is worth what it is able to earn by itself.

I'll take the author's word for it: the yield on 10-year treasuries fell to 1.16% this morning. Compare that to the January reading on inflation. Subtracting out the volatile food and energy sectors the reading was 2.3%. That seems to make the real return on capital -1.14%. That's right. People who invest in US treasuries are sure to lose. Why are interest rates so low? Because the Fed has felt the need to stimulate the economy ever since the 2008 Great Recession. Of course, it does help the government. At a negative real yield, trillion dollar deficits will simply inflate away over time, giving a believable excuse for ever more deficit spending. What is the effect? The Schiller CAPE ratio stands at about 30.91 compared to a long term average near 15.21. That is people have been encouraged to buy risky assets, stocks, so that you can achieve a positive real yield. That of course is the reason for our current stock bubble. Who holds the negative yielding bonds? Much of them are held by the billionaires, who having already made their fortunes, are satisfied with low yields as they give money away. Which is why the book by Saez and Zucman, "the Triumph of Injustice" is so wrong. These authors extol the virtues of a tax on wealth to redistribute from the billionaires to the common people. Such a tax is untested. But Sanders and Warren have embraced it as though there are no questions that need be answered first. We are being fooled by liberal economists.

What is interesting is not that the Fed has run out of room to cut interest rates. Low growth has been programmed into Western economies for years now, for many reasons, including low population growth in almost all developed economies. The answer that is interesting is the massive conversion that could and should be underway to transition from a carbon to a carbon-less economy. Think of the growth in various industries, the large infrastructure projects, and the consequent benefits. Low interest rates could and should make the conversion that much more affordable. Too bad our current president does not believe in climate change.

Lowering interest rate is a gimmick that Trump wants to use to support the stock market. It wouldn't work just as Japan's negative rate hasn't helped them for decades. Trump can lie and blame others but this time nothing is going to help him.

The Fed did not need to ease interest rates earlier this year.It was done ostensibly to mitigate the effects of Trump’s tariff wars.The Fed felt beholden to Trump who was demanding zero interest rates and jeopardized monetary policy by caving to his demands.The three rate cuts which were not needed earlier could be somewhat useful now but rates are so low that they do not move the economy.The Fed might just have to be prudent for a change and wait for this virus to dissipate and finally be cured at which time consumers will return to the market.

With maximum fiscal and monetary stimuli for the past 40 years, one wonders what might happen in the absence of these stimuli.

Fiscal and monetary polices are exactly the wrong tools to use in this situation. Such tools are used to get people out of their homes and into the workplace - exactly the opposite of what should be done to fight a contagious disease. If the only tool you have is a hammer, everything looks like a nail.

Nonsense. Much we can do such as loosen regulation, eliminate standards in lending, requalify equities for overnight margining and poach senior regulators into bank administration; what's the problem? Fake refi has worked in the past.

Let's give credit (pardon the pun) where credit is due ... to all the republican lawmakers and officials who have stood by either vocally or silently as this administration has been taking apart our government and constitution ...

Trump has already fired off most of the bullets he has to assist the economy. Low interest rates, tax cuts, favorable deregulation to industries. All he has left is an infrastructure bill to boost the economy this will just add on to the $1 trillion annual operating deficit, good luck with that.

Low interest rates don't necessarily mean an imminent recession. The Fed's actual central tool is qualitative easing, called various names over the years. A rose by any other name smells as sweat. It works, and the Fed is engaging in it.

Wow, the interest rates are falling! II'll be able to borrow money from the bank, so that I can buy more stocks that will correspondingly fall in price! Or if I'm an American citizen (not!), I'll be able to get a huge loan at a low price to pay for those medical bills that I'll have because Trump is going to get rid of Medicaid!

The powers that be do not fear that quantitative easing will fail to come to the rescue.

Oh yes, there is a way to respond to a slowing economy that does not involve lowering interest rates. It’s called fiscal stimulation in which the federal government becomes the buyer of last resort. Federal spending on much needed infrastructure, healthcare, education, etc could pump trillions of dollars into an economy where private demand has dried up. Fiscal stimulation has worked in the Great Depression of the 1930s and the Great Recession of 2008-2012. The key is that federal spending bump has to be really big, much bigger than most people realize. Does the Trump administration even understand the potential need for hugely increased government spending to avert a major recession? I wouldn’t count on it. Their understanding of economic policy begins and ends with tax cuts for the rich and deregulation of businesses.

Perhaps it's finally time to do more with less and take on Total Sustainability? After all, negative growth is good for the future Earth.

My lender's mortgage rates remain exactly where they were a week and a half ago. And I don't care what happens to the stock market this year. I can't retire for 17 years, thanks to our stingy social security program. The market was WAY overheated and due for recalibration.

A good question is: Why would we assume monetary policy could substantially mitigate the effects of events that are fundamentally not about money.

It should also be noted that the FED has injected over $6 Trillion into Wall Street since Sept 2019 to keep the bubble from popping. It will be interesting how much the FED will do to prop up their friends on Wall Street now.

When interest rates go below zero will we simply have our money stolen? It seems to me that no theft or crime is beyond the possibility given the absolute control that corporations wield over our elected officials and courts. Corruption is the norm now. The so called institutions of the US have been taken over and the people are not of interest to our fearless leaders. Just money. For their part the justice department, our so called intelligence agencies, law enforcement everywhere and just about any other government department or agency has been taken over by Trump loyalists and thus are simply additional corrupt tools for the corporate overlords to use against the people they enslave. I am not sure how the financial "geniuses" of the world thought that would go, but I doubt their thinking is clear on this since the smell of money overwhelms their other senses, if they have any.

Mr Irwin claims that, "The combination of low interest rates and large-scale deficit spending by the federal government has been enough to keep the United States growing for more than a decade, and has pushed the unemployment rate consistently below 4 percent." Except that the federal government has not been engaging in "large-scale deficit spending." It has actually been spending very little on infrastructure, while cutting the social safety net. In reality, the federal government has kept spending low, but handed massive tax cuts to the wealthy and corporations that has resulted in total government taxes at all levels of the American economy that are 10 percentage points below the OECD average. We should raise tax rates on the wealthy and corporations, and begin to really engage in "large-scale federal spending," as advocated by Bernie Sanders and Elizabeth Warren. Major infrastructure spending on green projects such as renewable energy, roads, rail, and telecommunications improvements, plus free college tuition and subsidized federal child care would result in tremendous economic stimulus, while taking advantage of record-low interest rates. Time for a progressive economic plan to pull us out of this descent into COVID-19 panic, which the incompetent Trump administration is incapable of handling.