A Cycle of Addiction
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In a world of negative interest rates where is the price incentive for the banking system to allocate capital to areas of the economy that carry default risk? Who is providing working capital loans to emerging businesses in negative rate countries? As this experiment evolves I become more deeply convinced that the model is deeply flawed and agree that it is damaging potential growth.
Can we rename Permanent Open Market Operations to Forever Open Market Operations…?
Calling Negative interest rates a Social policy is wonderful. It is a peculiar form that serves those who can borrow large amounts and invest it in whatever pays even the smallest return. On the other hand it ruins savers who’ve stupidly been working and putting money aside.
So social as in socialite, maybe.
We are already seeing the beautiful results of that policy in demonstrations across the world.
As for pension funds needing the capital gain provided by even lower rates to make up for the absence of return, it is investment as pass the parcel. So who is the last buyer? Will central banks buy bonds above par and hold them to term to lock in a loss? That should really produce interesting results.
Great article, well reasoned, makes way to much sense. It’s all going to end very badly one day. It’s just, the current narrative says that day is a gazillion years from now… So just keep buying.
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