Does anyone else think we have some serious global problems? Near negative or truly negative interest rates in many parts of the world strike me as a major red flag. My opinion is that the global debt burden is pressing hard on growth.
Rock bottom interest rates seem to imply too much savings chasing too few productive investment opportunities. In good times, savings should be allocated into productive capital investments that boost incomes and thereby increase demand in a virtuous cycle. However, structural imbalances can cause this process to go awry.
Excessive income inequality among households prevents recycling of dollars into the hands of workers, who have a much higher propensity to consume than large investors. Too low a household share of income also hinders consumption.
To analogize a bit, if the income of the upper class stagnates, one would expect a deflationary impact on the goods they tend to consume such as private jets, fine art, and luxury yachts. I propose that we are seeing broader global deflation due to the lagging incomes for the middle class.
At once, savers bid up financial assets (inverse price to yield relationship) and real assets catering to the wealthy (London and NY real estate for example). Higher P/Es and lower yields make sense with low interest rates until the denominators start to drop due to declining earnings and increasing defaults.
Where does it end? As far as I can see, there are only a few possible resolutions. Explicit debt forgiveness through write-downs, implicit debt forgiveness through inflation (only possible if money ends up in the hands of consumers), recession that forces down the savings rate (not really a permanent solution as we have discovered since 2008), or a redistribution of wealth from net creditors to net borrowers.
In the long run, resolving structural sources of excessive savings would have to occur as well.
Do you agree with my diagnosis of the problems facing the global economy? Are we nearing an inflection point portending a collapse in the financial markets? Do governments have the capacity to orchestrate an orderly resolution? I'd be interested in hearing your collective wisdom.
i'm not an economist but i think you're right about "only possible if money ends up in the hands of consumers" there are even some scandinanvian countries wanting to do it (http://fortune.com/2015/12/07/finland-basic-income-kela/)
The other day i read that QE is not doing it's intended effect and that much of the excess money is not lended to boost consumption and investment you can read all about here : https://www.project-syndicate.org/commentary/whats-holding-back-the-glo…
To summarize if you don't want to read the whole article or you just don't like the author for some reason...
+Financial Services Regulatory Relief Act of 2006 ( just before 2008 ...) -Title II: Monetary Policy Provisions --Section 201: Authorization for the Federal Reserve to pay interest on reserves (ask why said skilling.. :) ) --Section 203: Effective date (October1, 2011) then +Emergency Economic Stabilization Act of 2008 -Title I: Troubled Assets Relief Program --Section 128: Acceleration of effective date (from Oct 1 2011 to Oct 1, 2008)
If i assume that recent figures are correct and there is around 4 Trillions USD in excess reserve at the FED, even if the FED is paying 0.25 - 0.34% interest...that's a lot of money, US tax payer is getting !@%$@#
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