Central banks are still testing the limits to how low interest rates can go
economist.com
economist.com
The only people and entities able to borrow at zero (soon negative) rates are those who have absolutely no need for the money, thereby concentrating wealth further into the hands of the haves as they go on their asset buying sprees (and who wouldn't if, for you, money was free).
The only way to get money to people who really need it is fiscal transfers, either directly, or through jobs programmes. This single-lever monetary policy game is up. It's not working, it's creating massive distortions that we'll pay exponentially for in the future, and it's endangering the fabric of our societies. That central banks are pushing ahead even further with these ideas is one of the great robberies of our time.
You see, the main issue is not so much about sprinkling money around. It's that you're unfairly discriminating against the vast majority of medium/poor-credit people, while giving free money to equally poor-credit banks, who, as we all know, would be bust long ago because the liability side of their balance sheets are much bigger than assets, were it not for the prop-up of free money and wholesale transfer of bad assets to the public, at par prices instead of the steep discounts that should be warranted.
We're free-funding a zombie banking system in the hope that by inflating assets we'll bail them out "on the sly", meantime, all that money is being siphoned off by the wealthy into getting wealthier.
The working and middle classes are paying more than their fair share of the crisis, while capital (banks) has not been haircut for its bad decisions. Free markets are based on the principle that mistakes are punished, good decisions rewarded. We're instead short-circuiting the punishment warranted by poor capital allocation decisions pre-crisis.
It's squarely a political problem, a problem of huge discrimination in favour of the incumbent wealthy at the expense of everyone else.
All you've really done is recite the right-wing description of what you believe has happened to "the economy."
You haven't addressed what the better alternative was. If you are going to say, "let the economy collapse" let me ask you if you think economic collapse is really such a surefire prescription (in a nuclear age on top of that). If you think "stronger firms" emerge from collapsed societies, I guess maybe, but I'd really like you to provide some examples.
Also, before going further, you haven't really identified any of the mechanisms through which things are being "siphoned." The wealthy people are actually the ones trying to get the banks to raise rates again, they want their interest income back, so if it's being siphoned off to them, it's not what their advocating for.
The whole problem with your thesis is that it rests on assumptions that some things are implicitly bad and morally wrong, as if reality is so black and white.
The alternative is what has been the alternative forever in banking bailouts. Bankrupt the bad banks, temporarily use fiscal policy and more, actual infrastructure investment by government (job creation) to soften the blow to the economy (not very "right wing" though). You then have a much better clean-sheet kickstart to new investment, letting markets allocate efficiently, as they do.
On siphoning. Is it controversial that instead of a continuum of credit pricing set by markets, we have a disjoint between 15-30%+++ on one side, and zero on the other? You have a major actor distorting markets in favour of supporting banks. Is it controversial that the asset side of banks (the target of all the policy) is owned by the wealthy classes, and that therefore they're being favoured? I assume you know that LIBOR is currently around 0.25% and the wealthiest will borrow at only a few basis points above that, whereas the rest of us are lucky if we can borrow at 10x that price with collateral (i.e.: mortgage), and 20-100x that price without.
Let me correct you on who is wealthy. People who need interest income are not wealthy. They are middle classes or pensioners. At a long stretch they have a couple million in the bank. They're moderately wealthy at best. Real wealth owns equities, companies and property. That's what's benefitting most from this policy. You soften the blow to moderate holders of debt through government deposit guarantees up to a certain amount. But you do not wholesale buy shitty securities from rubbish banks, at 100c on the dollar.
I do not apologize for believing that unfair transfers from the poor to the wealthy are morally wrong. Everyone should have paid their fair share of mistakes in this crisis, whereas not everyone did.
Examples. Every emerging markets crisis in the past 50 years has seen large haircuts to debt, hurting the incumbent politicians and corporate bosses to the extent that they are usually replaced. This is what is supposed to happen. That's renewal. Brady restructuring of latam debt 80s. Russia late 1990s. S&Ls in the early 90s. Arguably, the dot-com crisis of the early 2000s followed a similar principle. Remember AOL, Nokia, Worldcom, or Nortel? They're gone, replaced by better companies and products. Boom inevitably followed all the EM restructuring. BTW, there is an excellent argument that Hungary, which was one of the few Comecon countries not to default on its soviet-era debt, was held back hugely by it. Its growth rates in the 90s/2000s was much lower than Bulgaria, Poland, the Czech Republic, or indeed, Russia.
A nickname may hold more truth than you think! The linked post is just the same tosh we're hearing from central bankers constantly dismissing inequality effects as "uncertain", "unclear", etc. Heli-ben loves low rates hence the nickname. His entire phd is about it. He is clearly not a good potential critic of the policy because his entire legacy depends on it working.
oh, and, nice unicode ;)
On siphoning - from experience, there's much more of a continuum than you think. You don't have a major actor supporting banks, you have a major actor supporting the economy by attempting to set a rate that does, in fact, have to be set (it's mechanically how these things work), by somebody. All they're doing is trying to follow the natural rate of interest, which is influenced by demand and demographics more than anything (see: Global Savings Glut; Secular Stagnation Hypothesis). So if that benefits the banks, it's only a side effect of the economy not collapsing. The banks are how we, as a society, allocate resources to each other. Why do you want that wiped out, and replaced by some post-crash phantom example? An economic crash in a nuclear age might not yield the companies you're hoping for.
No, I don't need correction on who is wealthy. I'm talking about the UHNWI with net worth over $50 million, who still would be making more money if rates were higher, hence why they advocate for this.
You do wholesale buy shitty securities from rubbish banks because the alternative is worse. Please point me to an economic collapse in the modern age where people were left off better for it, or where business conditions actually improved?
Furthermore, you're not distinguishing demand-driven recessions from supply-side ones. We hadn't had a recession of this nature since the Great Depression.
If you read what Bernanke openly puts on the internet about his decision making, his legacy way more depends on:
1. Understanding and anticipating the drivers of the natural rate of interest, including demand and the effects on demand of financial system shocks
2. Keeping the Fed Funds Rate as close to their estimate of the Natural Rate as possible.
That's what his legacy depends on. If that calls for lower rates now, fine.
The better alternative is democratic oversight of the entire financial "industry", an international clamp down on corporate and personal tax avoidance, checks and balances to minimise the manic depressive boom and bust cycle, an aggressive program of financial and social support for small-scale entrepreneurs with a proven record of originality, creativity, and inventiveness.
It would also be nice if Wall St could be retooled to provide finance to businesses with long term prospects, instead of being the crack casino it is now.
OK, so it sounds like this isn't really a debate anymore. This has the same coordination problem that the climate scientists "making it up" would have. If you understand how the system works, there already are checks and balances on that.
We have democratic oversight of the financial industry, as it is regulated in the way an elected government has chosen to regulate it. You're throwing out a lot of buzzwords but nothing that actually points to a solution.
For example, "an international clampdown on corporate tax avoidance." Well, that's fine, but you seem to be suggesting implicitly that there is a very clear moral case that corporations should always pay domestic taxes on income earned abroad... which most countries actually don't do. So that's why some companies invert. But is there anything morally wrong about this? I don't actually know and you probably don't either.
Also, you seem to be suggesting that stable, long-term businesses are capital constrained, which just makes it incredibly clear to me you don't actually look at data and see what those companies are doing from a capital allocation perspective. Those are the types of businesses that literally have too much cash to know what to do with, other than, you know, shore up their balance sheets after this really bad balance sheet recession we just had.
Regular. Criminal. Prosecutions.
The idea that there's effective regulation is bizarre. In reality the regulation consists of banks doing a lot of dodgy shit, and mostly not getting caught.
How long did it take regulators to realise that Madoff was running a Ponzi scheme?
I don't think stable, long-term businesses are capital constrained - I think democratically elected governments are.
And that's a serious problem for anyone claiming that that fact is compatible with effective regulatory oversight.
The QE stuff carried on far too long with no consequence to the banks.
If banking is such an awful business, let the investment houses and insurance companies spin off.
Furthermore, this isn't a massive asset bubble, nor does it fit the description of them. What sectors are in a bubble? If they popped, would they bring the economy down with them?
Your most credible case on this would be the energy industry - "low rates allowed shady shale companies to borrow billions at ultralow rates," right? OK, so now that the price of oil has been cut ~65% (65% of your revenues, gone!), we:
1. Still have positive inflation, even when accounting for energy
2. Still have a functioning energy sector
3. Haven't experienced any kind of major economic dislocations.
I guess what I'm asking is, how is this recovery making things worse in the long run, than a total economic collapse in a nuclear age would have been?
Because of that, we're in this weird near zero interest rate world that in the long term is undermining pension funds and creating other structural problems.
Paying ones debts is not a moral act. Defaulting on debts is not an immoral one, either. While we play games with this kind of phrasing of the problem, there's no coherent argument about how best to handle Debtocracy that has become the banking sector of the world.
https://bitcoinmagazine.com/articles/fedcoin-rising-14243124...
Allowing the central banks to not be constrained by the ZLB would allow significantly better economic recoveries and would allow the economy to grow despite our poor (or total lack of) fiscal spending.
I can't speak for the US, but Canada has the opportunity to do it and the Bank of Canada is being to taken to court over exactly this. https://medium.com/toronto-life/usury-in-canada-287001af6abe
At the core of it, we follow the money system as it is because we choose to. We can choose to follow another type of money system...It just takes effort and imagination. http://www.theonion.com/article/us-economy-grinds-to-halt-as...
> COMER and Galati are demanding that the government require the BoC to lend money interest-free to the Canadian Government in accordance with Canadian law
In the US, the Fed buys bonds and the Treasury pays interest on them. However the Fed returns profits to the Treasury, so these bonds are effectively interest-free. Is it different in Canada? What does the BoC do with its profits?