DiggerUK

The Dogma of Low Interest Rates Is Wrong

Harry Long quotes from a former article,
"Low interest rates often have the opposite of their intended effect. Extremely low interest rates can vacuum liquidity out of nations."

Reversing that argument shows that high interest rates can flood nations with liquidity via the carry trade.. A liquidity that sucks wealth from the host, with the same concern for the well being of that host, as a leech has for it's host.
It's a sub species of QE that causes the same problems when the time comes to remove the parasite. It can only be seen as QE by the back door.
The rise in $Aus. and $NZ are down to this carry trade, not expanding economies.

Australia and New Zealand are going to have to raise interest rates to dampen inflation at some point, all that will do is pump up the blood volume for the leeches.
Talk about throwing petrol on a fire.

Does the IMF Warning Indicate a Repeat of 1930s Banking Crises?

On Apr 22 12:44 PM dcb wrote:

> What do you do when all the countries are racing to the bottom?

Stay beyond the minimum safe distance from the finishing line ?
Just a wild guess.

Does the IMF Warning Indicate a Repeat of 1930s Banking Crises?

Sorry,
"inflation multiplier of x25 in 40 years" not 30 years.
Must study maths.
Must study maths.
Must stu................

Does the IMF Warning Indicate a Repeat of 1930s Banking Crises?

Peter,
".......it is still clear that there must be a day of reckoning"
Don't have a fundamental disagreement with that.

What I think we should do is look at what is different between now and 1930, and concentrate our thoughts there.

Exchange rates, gold price, fractional banking multipliers, major world players, were more fixed then, it is a lot more flexible now.

The weakest link in this flexible chain is the world's number one reserve currency. An IOU from the biggest debtor in world history.
At one point it was $35 to an ounce of gold, now it is $880/890 an inflation multiplier of x25. In 30 years.

I think that the systems ability to keep a lid on crisis' blowing out of control has moved from periods measured in days, to periods measured in years.

Capitalism has a remarkable knack of keeping going, so long as people follow a few basic rules. Everybody has been breaking the rules with abandon, that seems quite a meltdown to stop from were I'm sitting.

2008: Year of the Global Recession

Hindsight is a wonderful thing.

What is your foresight telling you?

Smartarses are ten a penny at the moment.

Collapsing Global Trade: Alive and Well

Macro Man,

You refer to China as "big spender of last resort" , I think I see your tongue in your cheek with that comment.

Your link through to Anecdotals with the figures showing some 20m workers in China looking for work, shows the reality.
These mirror the global forecast of the International Labour Organisation. (ILO)

www.ilo.org/global/Abo...

I still see no benefit in bailout money beyond debasing currencies, if the wealth creating base is being crashed, then were do we produce the surplus's to repay these bailouts?

If governments don't address the issue of the productive base of economies I see a far from rosy future.

I doubt if the ILO has accurately forecast whats coming.

Enjoy the snow!

Interest Rates Cannot Go Lower Than Zero

When rates are below inflation, then you pay negative interest.
With rates at zero, and inflation positive, you are paying negative rates.
Any maths Professors out there who can check my formula?


On Dec 19 04:05 PM neutrino23 wrote:

> Just a theoretical point but why can't rates go lower than zero?
> Instead of a contract to repay principal plus alpha after some period
> of time you write a contract to repay principal minus alpha after
> some period of time. Basically you pay people to borrow money.

Interest Rates Cannot Go Lower Than Zero

British understatement dear boy, British understaement.

Interest Rates Cannot Go Lower Than Zero

The net effect of 0% rates must surely mean that you are buying money at less than cost, if inflation stays above zero.
Do the maths, if you borrow now and inflation devalues money, the repayments get steadily easier.
A Zimbabwean who borrowed 1 Million 10 days ago could easily repay that ammount today, and be left with the change.
In a deflationary time of course it would be the opposite.
Whatever one thinks of Fed/Cental bank actions, you have to admit it's bold to move to 0% rates.