Years of permanently 0%-ish low-risk real returns

Possible long term vs probable short term

My base case for the long term outcome of the giant ZIRP/NIRP experiment being conducted on all of us (to bring about growth and moderate inflation), is that NIRP will not succeed, but will eventually lead to helicopter money that will do the trick (and overshoot on the “moderate inflation” part enough to make a lot of central bankers whisperyell “I told you so!” behind closed doors).

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The greatest malinvestment boom, ever

The economy needs low interest rates to recover

So, at some point after the crash of 2008-2009 both business and consumer confidence are dismal, investment and consumption are awful. There’s a decent debt overhang in the west, public and private. So naturally, growth is subpar. We need growth to float more boats, both literally and figuratively. To get it, we need investment and consumption. If the private sector doesn’t want to invest and consume, the public sector (both governments and central banks) can in theory incentivize it. Usually, it’s in the form of fiscal (budgetary measures like easing the tax burden) or monetary (central bank policy measures like lowering interest rates) easing. However, since most OECD governments are heavily indebted already and political undercurrents all but preclude lowering taxes in any significant manner, the burden of getting the economy moving again lies squarely with the true masters of the universe – the central bankers. So they do what they think might get people to consume and businesses to invest again. Interest rates go down and – as conventional wisdom would have it – the wheels of the economy should start moving again. But they don’t. Or they do, but it’s clearly not what everyone is hoping for.

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