patrick.net

This pisses off the same sorts of people who don't like imaginary numbers, but it's no big deal.

For several years, the U.S. sold treasuries at negative real interest rates, because the tiny interest rate was less than the rate of inflation.

Now we go to negative nominal rates under conditions of modest deflation. Since you're earning interest on your deposit (because your money grows in value over time) even if you're paid nothing, the bank is charging a fee for holding your deposit. They always do this anyway, even when interest rates are positive, by paying you less on your deposits than they make by lending them out - it's just more obvious now.

Like understanding the square root of -1 or a manual transmission - both objects being very much real - grasping the goncept of negative rates is an intelligence test.

Sure you could put cash in a mattress, but that involves risk and expenses which might well exceed the amount the bank is charging for the service of holding your money.

I agree. It's a milestone thing, which seems to have an impact on things that react to emotional triggers, like financial markets.

YesYNot says

negative nominal interest rates

The absurdity of Keynesian economics. Get paid to borrow money.

Of course the common man will never, ever get negative nominal interest rates on money he borrows unless the fees are greater than the interest he'd receive.

I wonder if negative interest violates the Islamic ban on usury.

Dan8267 says

The absurdity of Keynesian economics

How is negative interest rates Keynesian?

It's monetary policy meant to manipulate the market by means of transferring purchasing power from one person to another. It's essentially a mechanism of currency debasement to stimulate the economy at the expense of productive members of society, aka the working class.

Dan8267 says

It's monetary policy meant to manipulate the market by means of transferring purchasing power from one person to another. It's essentially a mechanism of currency debasement to stimulate the economy at the expense of productive members of society, aka the working class.

Yep--and that is the exact opposite of a Keynesian remedy. Keynes advocated redistribution from the very rich (hoarders) to the working class (spenders). Calling negative rates Keynesian is just ridiculous.

Again trying to push more debts in a world saturated with debts.
At some point they have to take a step back and realize how galactically stupid this entire scheme has become.

marcus says

but I do think it's an indication of an ominous situation we've been in, which is getting worse, in which the "normal" monetary policy tools are not there.

Marcus, Voting for Clinton's free trade has consequences...

Yes. Voting for tariffs right now would have consequences too. I don't know for certain, but I think it would lead to a period of inflation in which negative real rates continued, and in which wages don't go up as fast as prices. In other words, the workers getting hosed big time.

But then again, that's the one thing that happens no matter what. We must choose the situation that will lead to the workers getting screwed the least.

I do not see cause and effect between our trade policies and the current semi deflationary environment.

marcus says

I do not see cause and effect between our trade policies and the current semi deflationary environment.

It's not too difficult to connect the dots. Jobs move overseas causing more unemployment--demand is reduced. Less demand = even fewer jobs = more unemployment. More unemployment = more competition for remaining jobs = lower wages. Meanwhile, corporations make higher profits because labor costs are much less. So, owners make more $$ while workers make less. Monetary velocity goes down as owner class don't spend their $$. Bottom line = deflationary environment.

Of course if you are in a public union, none of this is your problem.

tatupu70 says

Bottom line = deflationary environment

Yes, you're right. I guess I can see that to some extent. What I can't see is that our standard of living dropped any more than it would have with an economic wall around ourselves. I believe that we know tariff wars would be disastrous.

tatupu70 says

Meanwhile, corporations make higher profits because labor costs are much less

Or is it because prices are lower ? Maybe in that alternative world with the economic wall around the U.S, smart phones didn't get off the ground because people weren't going to pay thousands of dollars for smart phones, and then facebook and twitter never got off the ground etc?

Its a questionable example - or exaggerated - but you might see my point. Sometimes demand here in the U.S. is actually enhanced by cheap foreign products. If you think of it as a one world economy, of course things get made where labor is the cheapest. I can see that that causes our standard of living to drop and theirs to go up, but wasn't that inevitable ? And isn't that what it's really all about ?

marcus says

we know tariff wars would be disastrous.

If we stopped trade suddenly it would disrupt a lot of things. So what? Just spread that over time.
You can't say cancelling trade would be disastrous when we lose hundreds of billions of dollars in trade every year, and with that jobs and wages and demand.

Facebook and Twitter have no manufacturing so it's hard to see how they depend on trade.

The point is not that Americans would be richer in terms of buying power, they would be richer as in more jobs, more wages, and this in turn feeding more demands.

Instead we destroyed wages and buying power for a majority of people, and then told them "at least you can buy iPads". You can't eat iPads.
Instead we pushed people in debt (housing bubble) and when they wouldn't borrow by themselves, the government did it in their names (stimulus), just to maintain the status quo.
All this debt creates a huge deflationary pressure which is harder and harder for the federal reserve to offset. They are being more and more desperate in their attempts to create more debt. Hence the negative rates talk.

This is not how things are supposed to work. Debt is supposed to be devalued by new money and growth. It isn't, because trade is crushing wages and demand. Instead debt is accumulated, with calamitous results.

Again, voting for Clinton's free trade has consequences...

marcus says

I believe that we know tariff wars would be disastrous.

It would hurt other countries much more than us. Remember, we have a huge trade deficit.

marcus says

Sometimes demand here in the U.S. is actually enhanced by cheap foreign products. If you think of it as a one world economy, of course things get made where labor is the cheapest. I can see that that causes our standard of living to drop and theirs to go up, but wasn't that inevitable ? And isn't that what it's really all about ?

But all that extra demand basically leaves the country. With the jobs in China, the $$ don't get recycled in the US economy creating more demand.

It's a proven fact that gold bars in the toilet tank never depreciate. What could go wrong?

tatupu70 says

Keynes advocated....

Source link?

tatupu70 says

Calling negative rates Keynesian is....

as Heraclitusstudent described, above.

I've written before, each major partisan/sectarian faction has its own delusional conceit. Democrats like to believe themselves more intelligent, and on average they may have a small advantage, due to the Republicans being weighed down by a large number of incredibly stupid people. Republicans like to believe themselves more moral, even though they aren't really. Neither side acknowledges, however, the essential nature of their conceits: mass delusion enabling exploitation by patronage networks, from Woodrow Wilson and Edward Bernays through the modern deficit-enabled military-industrial and medical-industrial complexes.

"Religion is regarded by the common people as true, by the wise as false, and by the rulers as useful."

It doesn't take extraordinary intelligence to understand the arithmetic of positive or negative real and nominal rates. It doesn't even take much intelligence to understand that if you get people to borrow and spend a lot of money, you can produce economic activity, for a while. It takes Orwellian delusion though to get people to trade credit for wealth, debt for freedom, "cold comfort for change." The issue with Keynesianism is a bit like Thatcher's critique of socialism: every society that borrows and spends to live beyond its means must find some way to repay, or end up like Weimar or Zimbabwe. The printing press is not a new invention. Mass delusion is not new either. History doesn't repeat, but it rhymes. The combination of a printing press and mass delusion can have seriously adverse consequences, because it conceals and enables the underlying imbalances and misallocations (especially waste, fraud, and abuse) instead of solving them. If the merchants of debt are telling the truth, and if their choirboys are so very smart as they like to imagine, then Greece and Puerto Rico are booming with debt.

Seriously though, I would be very curious to see a source link supporting the comment that (against my better judgment) prompted me to reply. Perhaps I have said too much. I don't learn by saying, I learn by reading. Fight with my comment if you must, but don't neglect to provide a source link for your original assertion.

curious2 says

Source link?

There is certainly no shortage of pages detailing Keynes theories. Here's the first one on my search:

http://www.wisegeek.org/what-is-keynesian-economics.htm

"Keynesian economics warns against the practice of too much saving and not enough consumption, or spending, in an economy. It also supports considerable redistribution of wealth, when needed. Keynesian economics further concludes that there is a pragmatic reason for the massive redistribution of wealth: if the poorer segments of society are given sums of money, they will likely spend it, rather than save it, thus promoting economic growth. Another central idea of Keynesian economics is that trends in the macroeconomic level can disproportionately influence consumer behavior at the micro-level."

tatupu70 says

There is certainly no shortage of pages [spinning purportedly] Keynes theories.

I meant a primary source, i.e. something Keynes wrote, not somebody else's spin.

curious2 says

I've written before, each major partisan/sectarian faction has its own delusional conceit

lol--just as you delusionally believe that you are above it all.

Trade deficits is a bit off topic, but since were here: Last I checked, energy trade accounts for 1/2 of the trade deficit. I think it used to account for the whole thing before the energy boom in America. One thing that Obama has done positively in this regard is improve automobile fuel economies, because fleet average economies are controlled legislatively in the US. On the supply side, Dems in general are in favor of developing alternative energies, while Pubs want to encourage drilling. While it would probably be easier to increase energy production going hog wild on the fossil side, I don't think that is the best option.

curious2 says

I meant a primary source, i.e. something Keynes wrote, not somebody else's spin.

OK sure, I'll find something for you.

Funny, you don't ask for a primary source explaining why Herc thinks negative interest rates are Keynesian, though.

Quote from Keynes on how lower interest rates would mean the "euthanasia of the rentier"

"Now, though this state of affairs would be quite compatible with some measure of individualism, yet it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital. Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital...."

tatupu70 says

Funny, you don't ask for a primary source explaining why Herc thinks negative interest rates are Keynesian, though.

Keynes did advocate debt as a means to promote economic activity in times of high unemployment, e.g. the particular context in which he made his reputation: the Great Depression. I suppose you could argue that he meant public debt resulting from government budget deficits, as opposed to Fed-promoted lemon socialist debt. That argument wouldn't support negative rates or Fed manipulation though, so merchants of debt who wish to cloak themselves in the clothing of Keynes tend not to argue that. It also wouldn't support the endless structural deficits that we see now, even in times of nearly full employment, and that the CBO projects as far into the future as it dares to predict.

Heraclitusstudent says

Quote from Keynes

Thanks - found it in Google books

curious2 says

I suppose you could argue that he meant public debt resulting from government budget deficits, as opposed to Fed-promoted lemon socialist debt

That's not an argument, it's a fact

curious2 says

That argument wouldn't support negative rates or Fed manipulation though, so merchants of debt who wish to cloak themselves in the clothing of Keynes tend not to argue that. It also wouldn't support the endless structural deficits that we see now, even in times of nearly full employment, and that the CBO projects as far into the future as it dares to predict.

Who cloaks themselves in the clothing of Keynes? I think you default to the position that if you think an action is bad--it's Keynesian.

Here's a quote from Keynes to ponder:

"By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.”

Heraclitusstudent says

Now, though this state of affairs would be quite compatible with some measure of individualism, yet it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital. Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital...."

Yep-he's basically saying not to value capital over labor.

tatupu70 says

I think you default to the position....

Can you find links to support that assertion? Perhaps you lack sufficient intelligence to discern that different people disagree with you for different reasons.

tatupu70 says

"By a continuing process of inflation....

You failed to provide a link. PBS attributes that remark to Lenin via Keynes, but says Keynes did endorse it:

"Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."

Gee, that must curb your purportedly Keynesian enthusiasm: "debauch" and "destruction" don't sound like endorsements at all.

tatupu70 says

Who cloaks themselves in the clothing of Keynes?

You did. That's why I asked. Your partisan trolling means nothing to me, but if Keynes said something, I would be curious to read that.

tatupu70 says

Heraclitusstudent says

Now, though this state of affairs would be quite compatible with some measure of individualism, yet it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital. Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital...."

Yep-he's basically saying not to value capital over labor.

He's basically calling for lower rates by breaking the savers monopole on capital. Taken to the extreme: negative rates.

Heraclitusstudent says

He's basically calling for lower rates by breaking the savers monopole on capital. Taken to the extreme: negative rates.

Yes, but he isn't calling for the extreme. And I think he would be strongly against negative rates. Just because someone thinks 5% is better than 8% doesn't mean they also think -1% is better than both.

curious2 says

Can you find links to support that assertion? Perhaps you lack sufficient intelligence to discern that different people disagree with you for different reasons.

Nope, I'm quite intelligent enough to know that you like to troll by writing condescending posts and pretending that you are the one person who is above partisanship. The lone sane mind in a sea of insanity. lol.

curious2 says

You failed to provide a link. PBS attributes that remark to Lenin via Keynes, but says Keynes did endorse it:

"Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."

Here's the entire quote:

“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.”

Pretty clearly a quote from Keynes and not Lenin.

curious2 says

Gee, that must curb your purportedly Keynesian enthusiasm: "debauch" and "destruction" don't sound like endorsements at all.

See--once again you assume things that are not at all true. I provided the quote for entirely the reason that it would make you question what you believe about Keynes. He didn't love inflation. Nor do I. But he understood that deflation was usually worse because of the unemployment it causes.

curious2 says

You did. That's why I asked. Your partisan trolling means nothing to me, but if Keynes said something, I would be curious to read that.

You're hilarious. You make no sense at all now. You were referring to me with your quote below?

curious2 says

so merchants of debt who wish to cloak themselves in the clothing of Keynes tend not to argue that. It also wouldn't support the endless structural deficits that we see now, even in times of nearly full employment, and that the CBO projects as far into the future as it dares to predict.

I'm no merchant of debt. I think I've been pretty clear that I believe in redistribution, not debt. So, would you like to try again?

tatupu70 says

So, would you like to try again?

OK, one last time, please provide a link for your unsourced assertion about Keynes, as I asked originally and repeatedly since. The rest of your blather is a fact-free (or counter-factual) waste of time, and primary source-free except for the link that I provided, but providing a primary source link to support your original assertion might partially redeem you.

Us wee folk have had negative interest rates for a long time, - the retail banking fees.

Only now that the elites and their wannabees the Hipster class are facing negative rates is it a problem.

"10.The main defects in our present society are its failure to provide full employment, and its inequitable distribution of wealth and incomes. Perhaps these two defects may be considered dual aspects of a single basic trouble; for economists have long recognized a connection between unemployment and the maldistribution of purchasing power. In Great Britain, especially since the end of the nineteenth century, something has been done to correct very great disparities of wealth and income. Income taxes, death duties and public expenditure for social services have contributed to this result. Further progress in the same direction may be checked by two considerations: (1) the fear of putting an excessive premium on tax evasion; and (2) the belief that the growth of capital depends on the strength of the motive for individual saving. As to the first point, it has no doubt some weight; but with regard to the second, it appears that the growth of capital depends not on a low consumption, or in other words on a distribution of income that gives a minority a huge surplus for saving, but on the contrary that measures for the redistribution of incomes in a way likely to raise the propensity to consume may actually favor the growth of capital. (In Mr. Keynes latest book he develops this argument in detail.) Only when employment is full is the further growth of capital dependent on "A low propensity to consume."

From Abstract of Conversation with Mr. John Maynard Keynes, recorded by A. P. Chew, May 8, 1936.

Thanks - that is interesting. Though you posted Chew's abstract of a conversation he claimed to have had with Keynes instead of actually quoting Keynes, Chew's 1936 abstract helped me find the chapter (24) of Keynes' 1936 General Theory of Employment, Interest, and Money to which your original comment might have related. You should really read the whole chapter, or better yet the whole book. Keynes wrote in his time, as we all do. "I believe that there is social and psychological justification for significant inequalities of incomes and wealth, but not for such large disparities as exist to-day." In 1936, at least in the USA, headline unemployment was around 20% of the labor force, and total production was less than a third of the potential that might have been produced at full employment. In that context, Keynes advocated public debt and spending as means to increase aggregate demand and thus production.

Today, we have nearly the opposite problem: where many people in 1936 were at serious risk of going hungry, Americans today are much more likely to suffer from morbid obesity. Yet, Democrats who like to call themselves Keynesian invoke his name to prescribe more of the same policies that have now become actually destructive. For example, Democrats argued that Obamneycare would "create jobs" by taxing "the rich" to subsidize and empower the sector of the economy already plagued by the most terrifying waste, fraud, and abuse. Mandating 20% of GDP into that sector is as grotesque as force-feeding a morbidly obese patient. Instead of producing too little, the economy is producing excess, and government is requiring excessive consumption.

Requiring people to borrow and spend even more, at a time of record deficits and debts and 5% headline unemployment, does not follow from what Keynes wrote. Keynes advocated efficiency and productivity. As means to achieve those goals, he did support certain redistributionist tools (e.g. taxation of incomes including inheritance), but AFAIK he did not advocate redistribution as a goal in itself, as you seem to do. Keynes' point was essentially that high unemployment and low production relative to potential amounted to a loss of wealth, which could be remedied by borrowing to prop up demand and then repaying in times of greater prosperity. Instead, both major parties in America today are determined to borrow and spend as much as possible all the time forever, with only different rationales for the same prescription: Republicans magnify military emergencies to wage war all over the world, while Democrats amplify medical emergencies at home. Both factions invoke the name of Keynes for different reasons: Democrats to mask their own corruption, Republicans to vilify taxes; neither faction seems to read what Keynes wrote and consider the relevance of the historical context in which he wrote it.

tatupu70 says

Keynes advocated redistribution from the very rich (hoarders) to the working class (spenders).

That's never how "stimulus" or "quantitative easing" or "inflation" has ever worked in the entire history of this country.

Dan8267 says

That's never how "stimulus" or "quantitative easing" or "inflation" has ever worked in the entire history of this country.

Agreed. My point is that none of those should be called Keynesian remedies.
curious2 says

Thanks - that is interesting. Though you posted Chew's abstract of a conversation he claimed to have had with Keynes instead of actually quoting Keynes, Chew's 1936 abstract helped me find the chapter (24) of Keynes' 1936 General Theory of Employment, Interest, and Money to which your original comment might have related. You should really read the whole chapter, or better yet the whole book. Keynes wrote in his time, as we all do. "I believe that there is social and psychological justification for significant inequalities of incomes and wealth, but not for such large disparities as exist to-day." In 1936, at least in the USA, headline unemployment was around 20% of the labor force, and total production was less than a third of the potential that might have been produced at full employment. In that context, Keynes advocated public debt and spending as means to increase aggregate demand and thus production.

You're welcome, and I have read it. I simply could not find a link to it.

curious2 says

Today, we have nearly the opposite problem: where many people in 1936 were at serious risk of going hungry, Americans today are much more likely to suffer from morbid obesity. Yet, Democrats who like to call themselves Keynesian invoke his name to prescribe more of the same policies that have now become actually destructive. For example, Democrats argued that Obamneycare would "create jobs" by taxing "the rich" to subsidize and empower the sector of the economy already plagued by the most terrifying waste, fraud, and abuse. Mandating 20% of GDP into that sector is as grotesque as force-feeding a morbidly obese patient. Instead of producing too little, the economy is producing excess, and government is requiring excessive consumption.

Notwithstanding your obsession with circling every discussion back to your pet peeve of PPACA, I disagree that the economy is producing excess. An argument can easily be made that obesity is related to poverty--crappy processed food is cheaper than healthy fresh food.

curious2 says

Requiring people to borrow and spend even more, at a time of record deficits and debts and 5% headline unemployment, does not follow from what Keynes wrote

Exactly. Let's stop calling it Keynesian.

curious2 says

but AFAIK he did not advocate redistribution as a goal in itself, as you seem to do

Not sure what you mean here. Of course redistribution isn't the goal. The goal is to stop the excessive inequality. Redistribution is a tool to reach that goal.

www.youtube.com/embed/Nt_zVk8j4wY