6 ms·

Central banks are still testing the limits to how low interest rates can go

32 points by e15ctr0n 11y ago

vegabook 11y ago
This policy is infuriating because we all know that the people who need access to credit cannot get it at anything like policy rates. They're credit-quality constrained and so borrow at 15% (if they're lucky) on their credit card, or at 30% per month if they're less fortunate. 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.
- conistonwater 11y ago
  You are ignoring the positive effect of this policy on unemployment and debt overhang. See, for example, http://www.brookings.edu/blogs/ben-bernanke/posts/2015/06/01-monetary-policy-and-inequality http://www.brookings.edu/blogs/ben-bernanke/posts/2015/06/01....
  - vegabook 11y ago
    "Helicopter Ben". I rest my case. 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.
    - HiLo 11y ago
      Somebody's nickname ≠ accurate description of their policy prescriptions. 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.
      - vegabook 11y ago
        hmmm. I thought I'd be criticised for being left wing but whatever. 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 ;)
- avn2109 11y ago
  @vegabook your ideas are interesting and I would like to hear more about them, particularly wrt asset bubbles. if you have a blog or something you should put a link in your HN profile.
futuravenir 11y ago
We really ought to end the centralization of banking and begin more transparent operations through a global blockchain. On par with that, we need to print our own debt-free money and move beyond the stranglehold of this centralized wealth conspiracy. 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 https://medium.com/toronto-life/usury-in-canada-287001af6abe
- HiLo 11y ago
  Can you explain why?
  - Spooky23 11y ago
    It sounds very disruptive.
  - futuravenir 11y ago
    If there is more debt than credit in the world, that means that we are either a) borrowing more to pay back our debts or b) pushing others out of business to take their funds so that we may pay back our own debts. This creates a dog-eat-dog mentality. This is only one way of recognizing value. It is not the only way of recognizing value. Once you acknowledge that, you can think outside of the box of how we can generate a system that reflects values in line with our humanity instead of one that forces us to compete. 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-nation-realizes-money-2912 http://www.theonion.com/article/us-economy-grinds-to-halt-as...
- millstone 11y ago
  From the link: > 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?
HiLo 11y ago
So before too much talk about the normal blockchain hype starts going, I think this is something that would actually be a phenomenal disruptive change: https://bitcoinmagazine.com/articles/fedcoin-rising-1424312468 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.

32 points by e15ctr0n 11y ago

This policy is infuriating because we all know that the people who need access to credit cannot get it at anything like policy rates. They're credit-quality constrained and so borrow at 15% (if they're lucky) on their credit card, or at 30% per month if they're less fortunate. 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.

conistonwater 11y ago
You are ignoring the positive effect of this policy on unemployment and debt overhang. See, for example, http://www.brookings.edu/blogs/ben-bernanke/posts/2015/06/01-monetary-policy-and-inequality http://www.brookings.edu/blogs/ben-bernanke/posts/2015/06/01....
- vegabook 11y ago
  "Helicopter Ben". I rest my case. 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.
  - HiLo 11y ago
    Somebody's nickname ≠ accurate description of their policy prescriptions. 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.
    - vegabook 11y ago
      hmmm. I thought I'd be criticised for being left wing but whatever. 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 ;)
avn2109 11y ago
@vegabook your ideas are interesting and I would like to hear more about them, particularly wrt asset bubbles. if you have a blog or something you should put a link in your HN profile.

futuravenir 11y ago

We really ought to end the centralization of banking and begin more transparent operations through a global blockchain. On par with that, we need to print our own debt-free money and move beyond the stranglehold of this centralized wealth conspiracy. 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 https://medium.com/toronto-life/usury-in-canada-287001af6abe

HiLo 11y ago
Can you explain why?
- Spooky23 11y ago
  It sounds very disruptive.
- futuravenir 11y ago
  If there is more debt than credit in the world, that means that we are either a) borrowing more to pay back our debts or b) pushing others out of business to take their funds so that we may pay back our own debts. This creates a dog-eat-dog mentality. This is only one way of recognizing value. It is not the only way of recognizing value. Once you acknowledge that, you can think outside of the box of how we can generate a system that reflects values in line with our humanity instead of one that forces us to compete. 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-nation-realizes-money-2912 http://www.theonion.com/article/us-economy-grinds-to-halt-as...
millstone 11y ago
From the link: > 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?

HiLo 11y ago

So before too much talk about the normal blockchain hype starts going, I think this is something that would actually be a phenomenal disruptive change: https://bitcoinmagazine.com/articles/fedcoin-rising-1424312468 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.