BlackRock’s Larry Fink made news today with the obvious statement that negative and low interest rates around the world are crushing savers and investment, making these policies “the biggest crisis globally.”
Zero and negative rates are digging an insurmountable hole in the financial viability of the world. We are now many trillions past the point where adding a bit more debt will stoke spending, indeed we are fully at the point where adding more debt only chokes off spending ability further. As pointed out in the Q1 2016 Hoisington Quarterly Review, the US added $1.912 trillion in debt in 2015 and saw just $549 billion in nominal GDP growth (3.5x more debt than growth added!) This approach has become completely mad. And it’s global:
The Federal Reserve, the European Central Bank, the Bank of Japan and the People’s Bank of China have been unable to gain traction with their monetary policies. This is evident in the growth of nominal GDP and its two fundamental determinants – money and velocity. The common element impairing the actions of these four central banks is extreme over-indebtedness of their respective economies. Excluding off balance sheet liabilities, at year-end the ratio of total public and private debt relative to GDP stood at 350%, 370%, 457% and 615%, for China, the United States, the Eurocurrency zone, and Japan, respectively. The debt ratios of all four countries [who represent the lion share of global GDP] exceed the level of debt that harms economic growth.
It’s painfully obvious that efforts to encourage more spending on debt are THE PROBLEM(!), not the solution. Apparently status quo policymakers are incapable of admitting they must now STOP and allow the savings rebuilding phase to run its course. They will need to be forced out of their seats by thinking people everywhere.
Central banks across the globe are trying a radical approach to boost economic growth: negative interest rates. But what are negative rates and will they work? Here is a direct video link.