Wednesday, October 16, 2019
US economy is just one bad recession away from zero rates or worse
Larry Summers stated that the United States is just one bad recession away from the interest rates falling to zero. He said that if this were to happen that we should immediately think of a stabilization policy to raise them to a stable rate. Corporations will have to figure out how their investment policies can be adjusted to fit the lower interest rates. He also pointed to the fact that he believes that there is a recession on the horizon but has no expectations of it happening within the next year. the interest rates have been cut twice this year alone and before that the last time that it happened was over a decade ago. prior to the cuts in the interest rates, the fed was more interested in the raising of these interest rates. The Trump administration is a big reason for the recent cuts and he is looking to try and cut the rates again before the year is over. My big question is what effects do you think the zero interest rates will have? and how dangerous do you think this will be?
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According to CNBC, having the interest rates go down to zero would be punishing people who save and it would also punish those who have fixed incomes. If the interest rate is low, it encourages people and businesses to borrow money in order to make big purchases. When consumers pay with less interest, this gives them more money to spend elsewhere which can cause a ripple effect throughout the rest of the economy to spend. This could create a situation with higher output and productivity.
ReplyDeleteBy already cutting interest rates twice we have already taken the safety cushion on relying on low interest rates to stimulate the economy away. I think a recession is inevitable with all the indicators have been showing us so rather than debating if a recession is underway, I agree with Mr. Summers that a precautionary stabilization policy is much needed.
ReplyDeleteHaving zero interest rates would give people no incentive to save. That could be very dangerous within our economy. Since saving equals investment, investment will also likely decrease so lets hope that is not the case!
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