THE WOLF STREET REPORT: How Even “Low” Interest Rates Screw Up the Economy

Interest rates don’t have to be negative to make a mess in the era of “Secular Stagnation.” (11 minutes)

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  110 comments for “THE WOLF STREET REPORT: How Even “Low” Interest Rates Screw Up the Economy

  1. 2banana says:

    How can we get Wolf Richter to become Chairman of the Fed?

    • Jaymo says:

      He seems to be a nice gentleman. Why would you place such a curse on him?

      • NBay says:

        He’d do ok. Once his “service” was completed (he could even quit early) he would easily land a teaching job at a prestigious University, and he could even continue his “never ending book”/media efforts there, with plenty of “street creds”, more resources, better health benefits, and a good pension.

    • envo says:

      If the Fed is doing the seemingly insane, it is because they see what we do not see, and they have determined that they no choice.

      They MUST keep the bubble inflated (and growing) because the consequences of not doing so surely are cataclysmic.

      Go back to 2008. If the Fed sits back and let’s the market correct, does anything think we would be here right now?

      Before you answer, remember what happened when Lehman went down. We were days away from lights out.

      • nhz says:

        Of course the Fed has a choice, the problem is who they are (not) representing with their policies. Lehman going down might have been the start of a return to financial sanity and a more responsible, planet-friendly economy but alas…

      • Les Francis says:

        A US politician later while on an economic based TV program stated that at the time they were actually hours away from Financial Armegeddon not days.
        A decision to give the Fed full control of situation had to be made between 10 and 11 in the morning so the stock market would not crash in the afternoon. Worldwide economic meltdown would have been within 24 hours.
        The next comet was : ” My God, do you realize the consequence of that?”

        • tommy runner says:

          lf- any chance you can put names to this drama ? just like to know who thinks we’ve escaped ‘financial armageddon’ and gods ans to the Q (just in case).

      • farmboy says:

        Just the simple fact that an exponentially growing population/civilization will at some point reach the limits of the vital resources of a finite planet seems to be the most powerful taboo of our times. It appears to me that we will soon or have already reached the maximum rate of total energy produced from all sources, that is being made available to the global end consumer. And it is only down hill from here with the steadily decreasing quality of ores that require ever increasing quantity of energy to mine and process.

        Fiat currencies are doomed to fail from the day they are created even if the underlying economy keeps increasing as it has been doing basically ever since the great depression, but if the underlying economy starts decreasing or just flat lines then its collapse is not far off. All the tricks like ZIRP and Helicopters can do is to keep it afloat for just a bit more.

        It appears to me that the powerful among us are well aware of the underlying situation in energy and other finite resources and seem to be playing their cards as most informed humans likely would. That is ” If the pie stops growing, the instinct becomes, grab as much as you can as fast as you can and run”.

        • XST says:

          Completely agree. It is the biggest taboo in today’s politics. We are nearing the end of the exponential growth cycle in human history. Just let it think in that humans have grown from 1 billion to 8 billion in just 200 years. If we continue to grow like that we’ll be shoulder to shoulder in a few decades.

          The real planetary crisis is the exponential population explosion which brings with it environmental degradation, accelerated animal species extinction etc. 30% of today’s population have no electricity but strive for the same living standards of the other 70%. Our proposed carbon tax solutions will do nothing to prevent this disaster.

      • economicminor says:

        One of the main problems the fed is looking at is US Treasury debt.. much of which is short term.. If they allow rates to normalize, then the US government borrowing is in extreme jeopardy. The interest on the existing debt is already the 3rd largest cost.. doubling the interest rate makes the US deficit untenable.

        Add in the 5+ trillion of corporate debt that needs to be rolled over in the next 24 months and you can see their dilemma.. They (we) are damned if they do and damned worse if they don’t.. No matter what they do they (we) are facing some very uncomfortable readjustments to say the least.

        Overcapacity in production and trade wars with high risk through out most sectors of finance while under reported rising costs to those who are to consume isn’t a receipt for good times ahead.

        Have we reached a breaking point? Time will tell.. The charts I read say this is a critical point. We either break out up or break down..

        • Zeppo says:

          Don’t forget about the “secret” debt: 700 trillion, notional value, in interest rate swaps according to Paul Singer. The FED is jockeying to try keep both the fixed rate side and the adjustable rate side from imploding. Exponentially leveraged margin calls are just as tedious as the exponentially leveraged contracts themselves.

      • JZ says:

        QE1 is what central banks created to do. Don’t use Leman to justify QE2 and 3. It is like you don’t shoot somebody and take his life because he/she insulted your mom. Response needs to be proper and in reasonable context and time frame.
        What they did on WE2 and 3 under the name of Leman is what messed lots of people up.
        People are naturally drawn to “interests”. People naturally hate “principles” and constrains.
        Nowadays, we can print, we can invade, we can regime change under the name of national “interest”. Those who define rules should remind the nation of national “principle” like the founders did. Central bank should be the guard of the “principle” of sound money. But instead, they are doing what ever is “good” to who ever’s interest, be it the elite or the corrupted indebted mass.

      • Old-school says:

        David Stockman says that the world was not going to end, but some on Wall Street were going to get wiped out.

      • d says:

        Lehmans was allowed to fail, as certain peopel in the administration, DID NOT LIKE Fuld.

        This was probably one of the worst administration financial decisions, in American modern financial history.

        Bailing Out Lehmans would not have averted a recession, but would probably have averted the Qe depression, much of the world outside the 1% is still in.

    • Paul Volcker is still alive.

      • GP says:

        If we need a really smart person for an institution to function well, that’s a systemic risk. That’s the reason most parts of the government have checks and balances.

        Fed has a very deep and wide mandate and not many checks (as easily evident by the 4T+ balance sheet).

        Let the market decide rates.

      • B says:

        What will house prices do under each scenario?

    • Lars says:

      Haha, that would mean “full reserve banking” :)

  2. Nice to see the bulk of your audience are GOP Trump fans. I respect your analysis, but someone other than Larry Summers would be much better.

    Greenspan Rubin & Summers laughed at Brooksley Born when she told them cancelling all banking regulation would lead to a massive crash. Since nothing has been done to change that, the next recession will also cause a world wide crash, but there will be zero will by the American people who saw what happened last time, to bail out the big banks again.

    • Wolf Richter says:


      “Nice to see the bulk of your audience are GOP Trump fans.”

      I’m not sure that’s the case. The “audience” spans the spectrum. Lots of libertarians too. I like it that way. I don’t want everyone to be on the same side of the boat.

      • Paulo says:

        Gee Santa,

        I take offense at being so categorized. Being a socialist Canadian who just happens to to save his money and works hard to be financially prudent, my wife and I are at the stage of watching language, itself, being distorted for personal gain by most politicians and CEOs. I think they call it lying, maybe our form of newspeak out of 1984.

        WS is a sane window of understanding of just what is going on, and the commentors provide a wealth of understanding for us ‘laymen’ (like myself). As someone who buys ‘hard goods’ like RE, tools, stores, plus gardens and preps for what I believe is a gawdawful day of reckoning just waiting to come crashing down, where else would I learn about bond investments, yields, etc etc etc (even the auto industry!!)? You can’t buy an education as thorough as what commentors offer for free on WS. Plus, and the big plus, almost everyone onj site is polite and respectful, just like us pinko Canuckleheads steeped in their single payer healthcare and carbon taxed beliefs. Read and stay for awhile. It’s one of my first stops, everyday.

        • Ken says:

          Wolf and Paulo. Thank you both for the comments. That is what makes WS enjoyable reading. No politics.

        • RD Blakeslee says:

          Then there’s me, act much like Paulo re “hard” goods and economic choices, but “conservative” (whatever that means, anymore).

      • DawnsEarlyLight says:

        I once dreamed I was a too far leaning to the left democrat! Scared the hell out of me, and I fell off the right side of the bed!

        Nice work on the Keiser Report Wolf!

      • Dave Chapman says:

        I think that a majority of (US citizen) audience voted against Hillary. That is not remotely the same thing as being a Trump fan. Different.

      • d says:

        “I don’t want everyone to be on the same side of the boat.”

        Must never be, otherwise you get capsize.

        Problem in America today, is that there is only a very small powerless center (Keel).

        No (weak) keel, very hard to keep boat on good course.

    • Kenny Logins says:

      The general public won’t think the banks are to blame this time.

      Trump (50:50 split), Brexit (50:50 split).
      Look at how everything that goes wrong in macro economics is now blamed on these uncertainties.

      Democracy, and the general public exerting choices will be to blame this time.

      You’ve even fallen for it by making sweeping statements about people in your opening statement, which was quite unnecessary.

      Divide and conquer.

      • RD Blakeslee says:

        “You’ve even fallen for it by making sweeping statements about people in your opening statement, which was quite unnecessary.”

        Is “You’ve” referring to Wolf Richter? And are you referring to his “Wolf Richter Audio Report” of Sunday, 8/25?

        After your comment, I went back and listened again to approximately the first quarter of it (the “opening statement”) and found no reference to people at all!

        So, what ARE you talking about, Kenny Logins?

        • TXRancher says:

          RD: Kenny Logins was replying to the “Santamonker” comment not the “Wolf Richter Audio Report”

        • RD Blakeslee says:

          Woops! Sorry, Kenny. I followed the wrong marionette string up to the wrong post.

          Thanks, TXRancher (see next post).

    • robt says:

      It doesn’t matter what the general public wants. Officials are placed in positions of authority to respond to crises to the best of their ability. They didn’t take a poll or conduct a referendum before they acted last time, and anyway such technically uninformed public opinion would be worthless even assuming that an instant result to such a survey could be obtained.
      However, if hypothetically such a question were posed to the public, individuals would probably vote to favor their personal well-being rather than preferring a philosophical economic abstraction which would likely result in a collapse of the economy and the loss of their savings and employment, thus aligning themselves with politicians of any persuasion.

    • Just Some Random Guy says:

      What? 80% of the people here hate Trump and love them some socialism.

      • NBay says:

        Hate produces stress and is really bad for ya. I will admit reality shows and sitcoms never were entertaining to me……at all, ever. (well, maybe a couple sitcoms from long long ago)

    • GirlInOC says:

      Good God, don’t include me in the “Trump fan” category! I get contact-embarrassment when I see people support Trump. (said to no one in particular Wolf, not getting into any specific disagreements, just generally speaking ;-)

    • TXRancher says:

      “Nice to see the bulk of your audience are GOP Trump fans. ”
      Been on this site long enough to know your comment is incorrect but i personally come here for the economic knowledge and not the politics. The lack of political bashing is what makes this site work.

  3. daniel weise says:

    Hope i’m alive in 20 years just to see how History looks back at this spectacular and unprecedented monetary Experiment concocted by the worlds CB’s. Everybody knows it’s insane yet nobody wants to be the first to end the Party. and why should they,the Egg Heads responsible will live out their lives collecting their untouchable government Pensions no matter what happens. for the rest there will be re assuring statements like “We did what we had to do,don’t blame us,it could have been much worse!” We have heard it all before an we will hear it again.

    • Winston says:

      I think 10 years will suffice.

      • Wisdom Seeker says:

        LOL… 10 years ago I thought it would only take 5…

        It’s almost impossible to derail a consensual mass delusion. It’s completely impossible when those in power depend on the continuation of that delusion.

        • Winston says:

          EXACTLY the same here! However, serious problems are now surfacing much more widely and are accelerating.

    • economicminor says:

      Are the CBs actually doing this per a plan or have they only reacted to a bunch of divisive dysfunctional governments that can’t seem to make good long term plans/decisions? US government fiscal policy has been a wreck for decades now. We once had a Tea Party revolt but that lasted only a minute and then the majority of legislators went back to business as usual. Making policies that were either under funded or outright fraudulently funded and ignoring sound regulation. Government repealed Glass-Steagall, not the CBs. I’m not saying the fed had NO hand in all this but the blame is really on our dysfunctional government.

      • NBay says:

        You mean (laugh, choke, gag) some Fiscal Policy?
        The Corporations, that group of blameless dictatorships, led by “special” and therefore highly paid wealth extractors, forged in a crucible of lying, cheating, back stabbing, among similarly sick beings, and becoming real “winners” in the American Dream, completely run “‘our” government now, (plus their free market enablers like Buffet, and many here, albeit with very teeny tiny “invisible hands”, as I doubt any here are in the PE Club) do NOT like TAXES, nor rules or interference of any kind.
        Since we obviously are going past (supply side) “trickle down” and well on our way back to the (at least honest) “Horse and Sparrow” Econ model, how about we just refer to it as Fecal Policy?
        Too many have eaten the ‘Memberberries, too many have special connections to the universe and will live forever if the behave in varied specified ways. Alas, I am doomed to the Lake of Fire, but I’ll try to make the best of it, like I always have.

  4. bungee says:

    So it begs the question: why lower rates? If its bad for banks, bad for the economy, where is the pressure to lower rates coming from? Its too much debt of course. Duh. And the bernank already told us the game plan; throw money out of helicopters if you have to. This is gonna be a total wipe out.
    Btw for those in SF: oxbridge coins is moving locations next month from vanness to polk st. Youll need to know a good place to buy gold ;)

    • LukeK says:

      Similar to the recent large corporate tax cuts in the U.S., the campaign to lower interest rates appears to target the public’s emotions instead of addressing an actual economic problem. I think many people in this country have no idea at all how monetary policy works, and this lack of awareness is manipulated with great success. The public tend to believe that when the leaders talk about raising or lowering interest rates, that this will directly correlate to the lending rates that they as consumers encounter in day to day life. If this were directly correlated, the way that these people imagine, everyone’s lending rates would have plummeted after the last recession (along with the rates), instead most are hard pressed to find consumer lending rates less than double what they had access to pre-recession.

    • nhz says:

      Just in time for a spectacular 100-year anniversary of the Weimar Republic (1921-1924). And hopefully we all know what came after that. Only this time it won’t one country going down due to clever banksters and politicians, it well be most of the developed world.

  5. envo says:

    Next up for Central Bank intervention: Hong Kong.

    PLA rolls in – tourism collapses – property market collapses – financial system collapses. HSBC TBTB?

    PLA stays away – riots increase in intensity – tourism collapses – property market collapses – financial system collapses. HSBC TBTB?

    The question arises, is Hong Kong TBTB? This is one of 3 key financial centres in the world. It is a crucial part of the Chinese economy.

    Black swan?

    • Jack says:


      The main events will take place on American soil.( the results of the next election will be detrimental)!!

      Everything else is a side show!

      Don’t let the HK sideshow distract you, if the 7 million people in HK don’t acquiesce to the will of the communists , the PLA will roll over the territory and take over .( Taiwan, US, Uk, Germany, Canada and Australia brace for the next influx of the economic refugees)!!

      The real problem for the rest of the world is how to read the US’s confused Economic policies!!

      There in lie the danger to the livelihood of billions of people.


      • Frederick says:

        Why would they go to somewhere like the UK, US or Germany ? That’s so Yesterday If I Were them I would go to Poland, Czech Republic or Hungary for a much cheaper and better life style Booming tech sector in Eastern Europe by the way

      • Nicko2 says:

        The US middle-class is tapped out. It’s only a matter of time before an economic conflagration.

        • Unamused says:

          It’s only a matter of time before an economic conflagration.

          That’s only one of several descending stages, and not the most interesting one.

          The moral of the story is, it’s a really bad idea to saw off all the lower branches while ascending to the top of the tree, especially the one you’re sitting on.

          “Interesting” is the appropriate euphemism, I think.

          Where have all the flowers gone? I can’t get a straight answer.

        • AlamedaRenter says:


          If you want a tree company remove a tree with a climber. That how it’s done. The climber starts at the base and as he works his way to top he removes all the branches leaving only the bole of the trees. Then the tree is removed and lowered down in small chunks from the top down. Or it just fell in one cut at the bottom.

          Either way your analogy is perfect actually.

    • Petunia says:

      I think HK is already lost. HSBC recently reduced their ranks by 4K employees. My opinion is that HSBC has already done a backdoor divestiture and all the non Chinese citizen workers are gone and the rest soon will be.

      I saw that PM Abe had a huge smile on his face at the G7, unusual for a Japanese PM. A shift of big banks from China to Japan would be a big boost for him, considering that Japanese banks are still carrying a lot of crap on their books. The extra liquidity will give him much more breathing room.

      Also, the top three financial centers are NY, London, and Tokoyo. HK was operational because it was running under UK laws, under Chinese law it is worthless.

      • Erle says:

        Nice observation on HK.
        That’s why I hang out in this joint. (I did add some beer money again for the podcast thing)

      • Erle says:

        I hit Wolf’s link back to the P2P page that he referenced and I saw that you posted.
        It is none of my business, but you seem to know a lot about expensive ladies’ accoutrements and high end stores, yet you seemed to be cash strapped enough to do a P2P. I have a high opinion of your comments and hope that you are doing well.

    • Yes and the real problem is how the US responds. Will 45 throw HK under the bus just to get a trade deal and cement his own reelection? Mainland China can squeeze HK through sanctions and various trade deals (XJ says we don’t need HK? sound familiar) and they are more logical about these things. HK will go the way of the City of London. Break it down and move it somewhere else. The people may keep some autonomy but their economy will be destroyed. Lesson for Taiwan in here somewhere, and perhaps South Korea if they agree to a Trojan horse reunification deal.

  6. Crush the peasants! says:

    Obama had a chance to be a truly great president, but instead we got Tim Geithner, no jail time, and Place Holder.

    And recall that Hank Paulson headed up Goldman Sachs during the period that resulted in that record fraud settlement. And then on to the head of the US Treasury.

    • Petunia says:

      The original sin was bailing out Bear Stearns. Had they put BS into bankruptcy, it is possible Lehman and the others might have survived and the collapse would have been avoided.

      • Erle says:

        The bigger sin was to bail out GS and their scam derivatives on AIG financial.
        On the old Kitco forum there were numerous posts by a guy? that had his? thumb on the ridiculous mess of that outfit that preceded it by more than a year. If it was obvious to him, it should have been obvious to the damned goomint operatives.
        The bailout was financed by gombit bonz that lie heavily upon those that had no seat at the table.
        In any sane society the Wall Street maggots would have crumbled with their bad hands. The Main street banks did not indulge in that casino and were able to continue without the parasitic NY skanks.

    • Rcohn says:

      The China trade policy was allowed to fester under OBAMA. History will look back upon our policy towards China as the ultimate in stupidity. We basically encouraged companies to ship our economy overseas and allowed China to quickly build up its military. For this what did we get. Lower prices on some items and lower workers for millions of honest , hardworking workers and a transfer of billions of dollars to the leeches on Wall St.
      This China policy along with a nothing immigration policy are OBAMAs legacy making him one of the worst presidents in recent years , exceeded only by BUSH 2 with the the disastrous IRAQ war.
      Trump is ignorant on many subjects , is narcissistic, bombastic and uses Twitter about 1000 as much as he should , inherited this mess and is attempting to change the China policy. If he gives in to those pro Chiba forces on DC and on Wall St. , conservatives like myself will stay home in 2020.

    • NBay says:

      I think Obama was taken aside and made an offer he couldn’t refuse, following that very last, “Inequality is the defining issue of our time” speech.

  7. London CFO says:

    Thank you Wolf for another fantastic report! All CBs will cut rates so they (a) reduce the interest rate burden on their own economies and (b) stiff neighbouring countries through exchange rate changes.
    With the crazy ECB having no accountability, they will just continue to carry on. The US has no option but to follow and cut rates (I’m in the UK), otherwise your exports and debt burden will destroy you first!

  8. Dave K says:


    Both what you and Summers say sounds correct. Seems like numbers prove your point. Knowing this why do central banks continue to make this blunder???

    • Unamused says:

      Knowing this why do central banks continue to make this blunder?

      They’re still trying to kick the can down the road. This strategy worked until the can rolled off into the storm drain and drifted down the sewers.

      Don’t worry too much about the bankers. They’ll outlast most people.

    • Winston says:

      “…why do central banks continue to make this blunder???”

      Because their economic theory is simplistic garbage. It is never changed because those in position to change it (the 0.1% and politicians) benefit from it in a two steps forward (asset bubble), one step back (crash with fire sale prices for those with cash) process:

  9. Andy F says:

    The danger of rates near zero or negative–the world could enter a no-growth cycle similar to Japan. Low interest rates, slow growth late, and no compelling reason to spend cash—would not be good for several years.

    • Jonathan Vause says:

      but that’s exactly what will happen, of course – demographics, slowing rate of technological improvement (all the major really life improving stuff has already been done, now we just tinker round the edges), increasing inequality leading to lack of consumer demand, etc. if anything the US will get off lightly as it’s population is still relatively young and growing, but Japanification is clearly the future (and it’s not as if Japan is some desolate hellscape either, of course)

      • Rcohn says:

        JAPAN is a very different place than the US.
        Very respectful of elders, very respectful of tradition, very disciplined and virtually no immigration.
        Just a minor example . Go to Japan and see how many fat people that you see. Then go to a so called healthy place like San Francisco and take a similar survey. You will notice a number of people in very good shape and many who are just plain fat
        The policies that Japan can endure will have much more dire consequences in the US.

        • Iamafan says:

          A decade ago, there were Peruvian Japanese in Japan; especially workers. They were sent packing, back to Peru.

        • ZeroBrain says:

          @Iamafan, where was thir PC leftist movement?

  10. I thought to myself in 08 the Fed should RAISE rates in order to price risk. Still feel that should be a (Congressional?) mandate.

    • Unamused says:

      If you’re a TBTF corporation you have no risk because the government will bail you out at public expense, thus externalising whatever risk you may incur to the general population. This policy has allowed externalised risk to increase expotentially, until now it’s so great it can no longer be priced.

      Besides, risk is a long-term issue and therefore best ignored, so as to continue the bloodletting and maintain profitability.

    • Dale says:

      There is already a law that requires the Federal Reserve to maintain “zero per centum” inflation. Problematically, the Federal Reserve is a law-breaking organization.

  11. jmh says:

    What is the best / most economical way to buy physical gold and silver in small denominations? I’m based in Charlotte NC.

    • Pete Koziar says:

      JMH, find a coin dealer near you and buy US bullion coins, either gold or silver. They’re usually available at close to the spot price of the base metal.

      Keep your eyes open (and Google) for coin shows near you. Most major (and some minor ;-) metro areas have them several times a year. Dozens or even hundreds of coin dealers usually sell there.

      There are also some online sellers. I can’t recommend one, since I usually have bought locally.

      • ZeroBrain says:

        Why do you suggest a coin dealer? Kitco is cheaper, right?

      • RD Blakeslee says:

        Online is easiest and there are reliable dealer rating institutions there, also. An eternal verity: There’s no substitute for due diligence. One has to “study out” his choices …

      • bungee says:

        I second Pete Koziar’s advice. Find a few local dealers and buy a little at a time and figure out who you like best and then stick with them. Use the internet to determine spot before you go and call the store first and ask their premium over spot for (say) gold eagles. Then when you go in the price should match. Its just a very simple straight-forward question that they should be able to answer with a simple number. The number itself doesn’t matter so much as them being consistent and straight up about it. And imho stick with gold.

    • Beware the counter-trend from the start of May 2020 to the end of September 2020. My guess is gold will drop all the way back down to $1,200 an ounce even U.S. Long term bonds will tank. The time to buy gold and long term bonds will be the end of September 2020. Dalio was right about gold but too early with his call.

  12. sierra7 says:

    Love your writings WR.
    But, you’re pushing on a string in using Larry Summers as an exemplar or wisdom in the current mess that he had so much to contribute to. I personally consider him one of the lowest of the low in terms of academia and his “credentials” to prognosticate on what will or not happen. As an aside he didn’t do to well when he was in charge of Harvard’s monies. In fact, he was a real disaster. You can do much better than LS.

    • Wolf Richter says:


      Ha, no, I’m NOT EVEN pushing on a string. I’m scraping the very bottom of the barrel to find some well-known economists, former government officials, or even former central bankers who publicly dare to agree with my theory that low interest rates and negative interest rates are at least in part the cause of lackluster demand.

      This is something economists of public stature that still have career potential aren’t allowed to say, although it’s obvious. I think it’s one of those career-ending pronouncements. Summers himself made a career-ending pronouncement (that got him ousted as president of Harvard).

      There are some things you’re just not allowed to say if you want to hang on to your job or get a bigger job — and showing that low interest rates and negative interest rates over the long-term are counterproductive for the real economy is one of those.

  13. They can lower rates if they put restrictions on leverage but they won’t do that

  14. Nels Nelson says:

    Larry Summers, the former chief economic advisor to President Barack Obama and demon spawn-nephew of Keynesian-lite economist Paul Samuelson, has been preaching his secular stagnation hypothesis for going on half a decade now. Mr. Summers was also first pick to head the Federal Reserve following the departure of Ben Bernanke and as resident ‘genius’-by-birth and paycheck extractor from a truly dis-impressive number of hedge funds, Mr. Summers’ ideas unfortunately continue to carry weight.
    Given his central role in creating current economic circumstance through bank de-regulation Mr. Summers’ continuing influence might be a bit of a mystery if it weren’t for his ability to so convincingly say one thing and do another.

    It was the very same Larry Summers now pushing his structural stagnation theory who as part of the Obama administration publicly asserted the need for New Keynesian economic policies while doing everything in his power to assure that they were considered politically infeasible inside the administration.

    There were a number of relatively straightforward policies that Mr. Obama could have implemented when he entered office that could have restored economic vitality reasonably quickly. The paths that were chosen of giving money to the banks while leaving those who were looted by them to fend for themselves and of adding insult to injury by setting up programs claimed to help the looted while in fact ‘foaming the runway’ with their misery and economic well-being set up the current dynamic of self-proclaimed ‘makers’ living large on the public dime while externally proclaimed ‘takers’ suffer the consequences of radical economic dysfunction. Larry Summers was at the heart of each and every one of these policies.

    The problem with the economy is that over the last thirty years a tiny economic ‘elite’ has seen stupendous growth in ‘the economy’ even as the indicators that mainstream economists defer to have shown relative stagnation. Framed differently, if so much of the income that ‘the economy’ is generating was not being taken by a microscopically small proportion of the population the relation of slow economic growth and what to do about it would be much more straightforward an argument to make.

    This doesn’t mean that the secular stagnation crowd isn’t sincere in the present. But it does mean that concern is being kept at a level of abstraction that sees the second-order looting and transfer of trillions of dollars in public funds to culpable bankers as economically ‘neutral’ when they were the central economic accomplishments of the Obama administration and were / are socially catastrophic.

    Please don’t pay any attention to Larry Summers.

  15. Roger R. says:

    This is really scary and I see no scape from this. Since most important economic areas are in low interest rates CB manipulation any small country with a sound economy which try to have a sound interest rate policy probably will get crushed by a big an artificial rise in its currency that will destroy their exports

    • d says:

      EXACTLY which is why countries like AU and NZ which dont need it, are jawboning, QE, more rate cuts cuts, NIRP, ETC as we a getting SLAUGHTERED, by this NIRP, QE Insanity.

      IN 2008 AU and NZ DID NOT LOOSE 1 bank or MAJOR financial institution. We now have some of the Most unnafordable BALLOONED housing markets IN THE WORLD.


      Two countries that before 08 NEVER HAD a Homelessness issue.Now have serious ones due to forigen speculators money pouring into a safe haven market, making it completely unnafordable for the everyday citizens of the country.

      Take what silicone valley has done to Frisco and apply it to a whole country THAT HAD AFFORDABLE HOUSES.

      That IS what AMERICA The EU AND CCP CHINA HAVE DONE TO US. With their “our 1% are all that matters” QE NIRP Games.

      The repeal of Glass Stegal, IS, a global, not just an American, financial CATASTROPHIE.


  16. Just Some Random Guy says:

    I like 3% mortgages.
    Sue me

  17. Jim says:

    We are entering into the stage that the Federal Reserves “moves” are being met with more “justified” loss of confidence and voices who think they no longer are “good guides” to economic prosperity. The fact that the Fed is copying “failed policies” of Europe and Japan demonstrates this.

    The US, like other G7 nations, have gone too far in their war on their citizen’s labour (exported jobs to 3rd world countries and imported cheap labour through mass migration) and savings. Subsequent actions have emphasized debt expansion which suppresses “future spending” to compensate for the loss.

    How do you improve aggregate demand? By improving the monetary velocity…..through higher wages and incomes of the average citizen. Not by introducing “disincentive economics” which current policy of higher debt and poor incentives produce. This is contrary to the war on labour and savings.

    • economicminor says:

      Jim, I think you have bought their propaganda. How does a system increase the velocity of money? Not by inflation. Raising wages isn’t an answer in itself either. That leads to inflation if it doesn’t actually just cause collapse. In fact it is a just feeding into their schemes to believe in or want inflation.

      You have to have a more equitable distribution of the profits made to actually increase the velocity of money. Hard to actually do under any economic system. It would require a civilization built upon just/sound morals instead of greed and fear.

      All inflation does is transfer the wealth from the producers to the financiers and asset holders and away from the workers/producers. You need to dispose yourself of the idea that inflation is good unless you are one of the asset holders or the financiers.

  18. medial axis says:

    AISI, I don’t think they can raise rates as it’d crush pensions. That goes for CBs world wide. Pensions used to buy government bonds but have been forced out of those due to QE. They have been forced into corporate bonds, among other stuff, which are riskier and all the more so as some are propped up via buy backs using cheap QE dosh! Pensions cannot hold bonds if they fall below certain risk ratings. Raising rates could push some bonds below those ratings so lead to large sell offs by pensions and thus exacerbate losses.

    Just my two sats worth.

  19. Wisdom Seeker says:

    Even the San Francisco Fed now agrees with WolfStreet!

    “Japan’s experience also illustrates the desirability of taking preemptive steps to avoid the zero interest rate bound.”

    • Wisdom Seeker says:

      P.S. The preceding SF Fed paper, from August 7, is also of interest:

      “foreign demand for U.S. safe assets, particularly government-provided assets, has increased dramatically, and may now be playing a much larger role in the determination of U.S. interest rates than in the past”

      Translation: When foreign central banks print up credit trying to cope with local economic weakness, foreign investors use that credit to buy Treasuries as a safe haven with actual yield. That demand pushes down U.S. interest rates.

    • Wolf Richter says:

      Wisdom Seeker,

      Wow, thank you. That is hot off the press even. Gotta mosey over there and talk to these people :-]

      Maybe the idea is becoming more politically pronounceable without a career-ending event.

      Or maybe the paper gets withdrawn and the authors are threatened with getting fired. This happened at the Cleveland Fed in 2017. Researchers there, in conjunction with some academics, published a paper that rode roughshod over the P2P lending industry, which then responded with force. I’d covered the original article and then was contacted by the P2P industry to get me to pull my article about the paper, which I refused. And I still have the original paper too. I later heard from a source that at least one of the authors had run into career issues at the Cleveland Fed because of pressure from the P2P lobby.

      Here is my article, including the update:

      Anyone interested in the actual paper, email me at the “Contact us” tab, and I’ll send you the PDF. These industry lobbying groups can get brutal.

      • Wisdom Seeker says:

        You’re welcome, although I can’t really take credit; someone else flagged the report and I just followed the link.

        But thanks for that reply with the P2P example! I didn’t realize that even the “Independent” Fed’s research was so heavily constrained by market participants. The revolving door at NY Fed is bad enough, but one would have hoped the regional Feds would be better protected. In the end, I suppose for the Fed to be truly independent it would have to not be owned by the largest banks.

      • d says:

        As I wrote here a short time ago what may need to happen particularly in “Haven ” Nations with excess demand. is that CB’S and administrations start to exert further control on who may or may not hold their assets.

        Possibly a National and International Treasury rate.

        Further control on who may buy, or continue to hold, land (with or without Dwellings/buildings on it).

        Failure to do such, must fuel more, and larger, undesirable bubbles, along with. Unrealistically high currency values/Bid prices, in a developed Haven Economy.

        Such regulations in extreme situations would see nationals holding the safe assets, and the junk bond market, along with high risk stocks, packed with forigen money.

        Not necessarily bad for nationals, when there is a correction event.

        Although it would Help keep unwanted Zombies and unicorns alive,v which has down sides.

        As I wrote before. The ECB and PBOCn Ke4ep ion printing Overtly and Covertly and teh money flows straight to the Havens.

        Primarily the US.

        This is another unforeseen LARGE NEGATIVE of a, FIAT, QE, NIRP, world. Where all CB’s do not follow the same playbook, in a globalised economty they must be only 1 set of rules.

        What we are seeing m as time goes by is the result of failure to ensure that EVERY BODY plays by the same trade and financial rules.

        Otherwise Labour, rates, conditions, and safety standards, Along with pollution and waster disposal standards, are reduced to the lowest common denominator. Further distortions are occurring as QE/NIRP capital flows to Havens, Compeltly ruining those havens, for the common nationals born in them.



  20. Nels Nelson says:

    The situations in the EU and Japan should not be compared to the US.

    In the EU, one of the obligations for the members of the Maastricht Treaty was to keep “sound fiscal policies” with debt limited to 60% of GDP and annual deficits not greater than 3% of GDP. The EU doesn’t have fiscal policy to use. They only have monetary policy. They were late with QE and deleveraging wasn’t done through the balance sheets of the financial institutions but through austerity in the periphery. This has created shitty politics along with a very fragile tightly coupled system and only Draghi’s bond buying keeps it from crashing.

    As for Japan, their public debt is at 250% or more of GDP but almost all of it is owned by them. They are still suffering from deflation and their economy is bumping along. In the words of political economist Mark Blyth: “Japan is defaulting on themselves without anybody noticing”.

    As you’ve said a number of times, the US is the least dirty shirt in the drawer.

  21. WSKJ says:

    Excellent points made above.

    to some extent the current global economic picture, inc. the NIRP experiments; may be nothing more nor less than reactions to the underlying awareness- subconscious in many cases- that the earth may be close to its true carrying capacity in terms of human population. (farmboy remarks above)

    If this is the case, the comments above from Nelson, re Japan, once again raise the question whether Japan, with its homogeneous aging population, is ahead of the curve in preparing for a stable population, that is, an economy not posited on population growth. That’s a question.

    And, to be clear, if they are the economic vanguard, I hope to soon see them declaring the failure of the NIRP hypothesis, and trying out some other better economic hypotheses. Abolishing NIRPs, and constructing some new better models, would be a jobs program. Come on, guys !

  22. Jake Bodhi says:

    Thank you Wolf.

  23. Carl Marks says:

    Here is my take: the inflationary status quo where growth and interest rates are positive is behind us. NIRP is not the cause, it’s (a) solution to negative growth and shrinking economy. Why it’s shrinking is another discussion, but infinite growth on a finite planet is not only impossible, but suicidal.
    Zero is just a number, once you start shrinking the game is who’s the biggest loser, ie if you lose less than others nominally, you come ahead of them.
    The economy doesn’t change overnight because the return on capital becomes negative for everyone. That’s already happening today, when real inflation exceeds the current interest rates. It’s growth that is collapsing, and without growth you cannot repay positive interest rates, therefore everybody will take a haircut.
    Of course modern society and capitalism are based on externalizing the costs of growth by consuming the planet, and that’s coming to an end. Stagnation is the best scenario, most likely instability and shortages in the near future until the world stabilizes into a more sustainable way of life.

  24. medial axis says:

    Here’s an interesting article on Forbes re an unconventional hedge against negative rates and, equally, bad government[1].

    One warning though. Do your own due diligence. In particular regards Craig Wright vs Kleiman. Probably best to wait till that case is resolved.


    • Wolf Richter says:

      So you get bad government anyway, and in order to avoid losing a little bit due to negative interest rates, you buy bitcoin and lose a lot? I just LOVE this logic!

  25. Derick Jones says:

    Last play to delay the abyss is to lower interest rate so that mortgage rates are around 1%./30 year. Big boost to the economy. Do same for leased autos etc. Big losers will be the banks Japan and Germany already there,

  26. Mr, Knoss says:

    Love your accent Wolf, I find it soothing.

    Thanks for all the work you do here.

  27. Growth in the US is slow, and in Europe and Japan dismally slow, despite years or decades of low interest rates or even negative interest rates, and despite massive bouts of QE that had the effect of repressing long-term interest rates even on risky assets such as junk bonds.

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