The Folly Of Economists: Negative Interest Rates
By Bert Dohmen
Bernanke, the person nicknamed “Helicopter Ben” because he said it would be easy to fight deflation even if it had to be done by throwing money out of helicopters, gave us ‘ZIRP,’ which means “zero interest rate policy.” Now he seems to be leaning toward ‘NIRP,’ “negative interest rate policy.” He is an economics professor now. We can only hope that his students do some outside reading, like Ludwig von Mises.
Jeff Cox and Katie Kramer of CNBC wrote this:
Former Fed Chairman Ben Bernanke thinks policymakers should give serious thought to implementing negative rates.
“Since that can’t be assured, and since the current low-interest-rate environment may persist, there are good reasons for the Fed and other central bankers to consider changes in their policy frameworks,” he added. “The option of raising the inflation target should be part of that discussion. But … it is premature to rule out alternative or potentially complementary approaches, including the possibility of using negative interest rates.”
“In the political sphere, the fact that negative rates would be temporary and deployed only during severely adverse economic conditions would be an advantage,” he said. “Like quantitative easing, which was also unpopular in many quarters, a period of negative rates would probably be tolerated by politicians if properly motivated and explained.” (See full text of Bernanke’s post here.)
Note the word “temporary.” As a wise man said a long time ago, there is nothing more permanent than a governmental “temporary” program. Also note that he focuses on pleasing the politicians.
It is clear that central bankers are totally confused. They have no idea of the damage they have wrought in the global financial system. More than $13 trillion of government bonds are now yielding below zero, which means that the buyers have to PAY interest instead of receiving it. That’s the first time in 5,000 years of recorded world history.
What can possibly go wrong? All these people probably have Ph.D. degrees in economics. They learned everything from text books.
During the hyperinflation of the 1920s in Germany, money supply was growing slower than the rate of inflation. For example, when the inflation rate was 150%, but money supply might only have been growing at a 75% rate. The elite economists, in Germany called the “Herr Professors,” who are just a step below godliness, advised the government that money supply was growing too slowly and this would lead to a recession.