December 12, 2015

RATES ARE ALREADY USURIOUS:

Central bankers do not have as many tools as they think (Larry Summers, 12/06/15, Financial Times)

A number of considerations make me doubt the US economy's capacity to absorb significant increases in real rates over the next few years. First, they were trending down for 20 years before the crisis started and have continued that path since. Second, there is at least a significant risk that as the rest of the world struggles there will be substantial inflows of capital into the US leading to downward pressure on rates and upward pressure on the dollar, which in turn reduces demand for traded goods. [...]

Fifth, inflation mismeasurement may be growing as the share in the economy of items such as heathcare, where quality is hard to adjust for, grows. If so, apparent neutral real interest rates will decline even if there is no change in properly measured rates.



Posted by at December 12, 2015 9:47 PM

  

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