What happens if interest results stay so low/decline even further?

[🦀🎂🦀🎂]

So China's Central Bank is cutting interest, and Japan, Europe, the U.S. and UK have historically low interest rates as well. My understanding is this will be maintained until investment rises or inflation becomes a threat. So what happens if we see a long prolonged period of effectively zero interest?

[Taco Truck 🚚]

So what happens if we see a long prolonged period of effectively zero interest?

We've already seen a prolonged period of effectively zero interest rates.

Various distortions will occur.  House prices will go up.  Stock markets with go up.  Tons of bad startups in Silicon Valley will get billions in funding.

You must be logged in to read this quote.

http://www.businessinsider.com/afp-silicon-valley-mulls-invasion-of-unicorns-2015-4

You can also have negative interest rates.  BoNY had negative interest rates for large accounts a few years ago.

You must be logged in to read this quote.

http://www.businessinsider.com/banks-discussing-negative-interest-rates-for-consumers-2015-10?r=UK&IR=T

[🦀🎂🦀🎂]

So will nobody will save anything at all then, and all liquid capital will flow into assets?

The thing is investment doesn't seem to be that high at the moment, even with the low interest. Where is the money going?

[Maxwell]

We're facing the point where monetary has basically done everything it can do. Helicopter money hasn't been very effective, we can't really get beyond the zero lower bound, so the conclusion is we need fiscal policy to do something since our economy is still relatively stagnant in terms of wage increases. Sadly enough, I think it's going to be in the form of military expenditures rather than the infrastructure improvements we need.

[Taco Truck 🚚]

Where is the money going?

As I said we are seeing asset inflation in the stock market, housing market, and in Silicon Valley as a whole.

Banks have been lending... just not to consumers.

You must be logged in to read this quote.

http://www.cnbc.com/2015/02/18/banks-arent-lending-to-consumers-heres-who-is.html

Seems even as deposits have gone up the amount loaned out has decoupled.

[Simfan34]

We're facing the point where monetary has basically done everything it can do. Helicopter money hasn't been very effective, we can't really get beyond the zero lower bound, so the conclusion is we need fiscal policy to do something since our economy is still relatively stagnant in terms of wage increases. Sadly enough, I think it's going to be in the form of military expenditures rather than the infrastructure improvements we need.

What reason is there to seek intervention to raise wages if inflation remains low?

The key is to encourage long term focused corporate management, reducing incentives to eschew investment in favor of short term value maximization, and more direct pressures in the form of buybacks and dividends. Policy approaches to this end would involve restructuring the capital gains tax to favor real long term ownership (1 year is not long term) and corporate governance to favor more long term interests.

Underutilized capital could be mobilised by the National Infrastructure Bank we've long talked about, with its bonds carrying highly advantageous tax incentives. (A deduction on purchases and exemption on interest, perhaps). The point of the Bank would not be Keynesian stimulus but rather infrastructural investment to boost competitiveness. A national broadband network as in Australia, port expansion, railway electrification, high speed rail, smart grid, etc.

[Taco Truck 🚚]

We're facing the point where monetary has basically done everything it can do. Helicopter money hasn't been very effective, we can't really get beyond the zero lower bound, so the conclusion is we need fiscal policy to do something since our economy is still relatively stagnant in terms of wage increases. Sadly enough, I think it's going to be in the form of military expenditures rather than the infrastructure improvements we need.

What reason is there to seek intervention to raise wages if inflation remains low?

Doesn't matter if inflation is low for a handful of years if middle class wages haven't kept up for decades.

[Donald Trump 2016 !]

We're facing the point where monetary has basically done everything it can do. Helicopter money hasn't been very effective, we can't really get beyond the zero lower bound, so the conclusion is we need fiscal policy to do something since our economy is still relatively stagnant in terms of wage increases. Sadly enough, I think it's going to be in the form of military expenditures rather than the infrastructure improvements we need.

Fiscal policy to prop up demand also includes cutting taxes.


Anyways wouldn't negative interest rates cause banks to horde money? Banks are already sitting on 1.8 million+ dollars uncommitted to loans as is so this policy sounds disastrous.

[Sprouts Farmers Market ✘]

Eventually, the market will correct itself.

Hot take. I hear the robotic indoctrinated response. Is the market not correct now? Is there not a saving glut? How are these savers supposed to just change what they are doing?

People play the role they are dealt in the economy. What would savers do when they are unhappy with the price they are receiving for lending out their money? Just work less? Or consume more today? But all those people are saving for homes (and retirement and yada yada) eventually. They have no option but to save in reality. That will of course change when they decide to put down a down payment and become a borrower, but that isn't a correction. That's just the natural life cycle of a human being.

I have little doubt they will go up eventually, but that doesn't mean they aren't correct.

[Ebsy]

If Congress passes the current budget deal and averts a government shutdown/default, there is going to be enormous pressure on the Fed to raise interest rates come December. Central bankers see the specter of inflation everywhere.

[Sprouts Farmers Market ✘]

If Congress passes the current budget deal and averts a government shutdown/default, there is going to be enormous pressure on the Fed to raise interest rates come December. Central bankers see the specter of inflation everywhere.

That's not what the Fed was saying last month. That was a complete reversal thanks to pressure from the worldwide slowdown (i.e. everybody but us). Imo, I'd say March at the earliest, and that's being conservative since I really don't want to speak according to a time horizon.

[King]

Eventually, the market will correct itself.

Yes, it will hopefully correct itself and surge even more.