Negative rates are a bad outcome

There’s nothing wrong with central banks paying negative interest rates on bank reserves. There is something very wrong with a monetary regime that causes equilibrium nominal interest rates to end up negative. That’s one way of thinking about my recent Econlog post.

Yahoo has an interesting article on negative interest rates:

“Rising life expectancy increases desired saving while new technologies are capital-saving and are becoming cheaper – and thus reduce ex ante demand for investment,” Fels writes. “The resulting savings glut tends to push the ‘natural’ rate of interest lower and lower.”

The disinflationary impact of technology is something that many economists and policymakers have argued is keeping a lid on inflation and, in turn, interest rates. Federal Reserve chair Jerome Powell, for instance, said in May that, “Today’s inflation dynamics are very different from even 25 years ago. Globalization and technology may be playing a role.”

These two paragraphs sound similar, but there are important differences.  Powell seems to be suggesting that globalization and technology reduce inflation by boosting aggregate supply.  That could happen, but in fact aggregate supply has done poorly in recent years, so there is no way that the supply side of the economy can explain the recent low rates of MEASURED inflation.  BTW, I don’t even consider this a debatable point; so don’t respond with irrelevant claims such as the theory that ACTUAL inflation may be lower than measured.

Fels’ comments are more interesting, albeit also wrong in an important way.  I suspect that he has correctly zeroed in on two of the key factors that are depressing real interest rates throughout the world. 

People often talk about “population growth”, but that clearly doesn’t explain inflation.  Venezuela may have the world’s lowest population growth at the moment, and last time I checked they were not experiencing deflation.  Fels is right that the aging population is more likely the key issue.  Middle-aged people now expect to live a long time, and they are willing to save money at even negative rates of interest:

Longer life expectancy, in Fels’ view, also contributes to lower inflation as longer-living savers have a “negative time preference,” meaning they prepare for future, rather than present, consumption. And all else equal, fewer people spending less money in the present will keep prices flat or falling as demand does not pressure supply.

“Once upon a time, economic theory maintained that people always value today’s consumption more than tomorrow’s consumption – and thus display positive time preference,” Fels writes.

“People would therefore always demand compensation in the form of a positive interest rate in order to forgo current consumption and save for the future instead. People were viewed as impatient, and the more impatient people are, the higher the interest rate has to be to make them save.”

But this is not the world we live in now.

He’s wrong about how this impacts “demand” (which is determined by monetary policy), but I suspect he’s right about the causes of ultra-low interest rates.

So if demographic trends causing more saving don’t lead to lowflation, what does?  The answer is simple: monetary policy.

So then why do low inflation rates correlated with low real interest rates and also with aging demographics?  That’s a harder question.

One possibility is that the correlation is explained by some central banks making the foolish decision to target interest rates.  Just look at the yen, where this is especially obvious.  Almost every time there’s a negative shock to the global economy that depresses the real interest rate, the yen appreciates and Japan falls further from its 2% inflation target.  The mainstream media claims this is due to people all over the world being engaged in a “flight to safety”, which doesn’t even pass the laugh test. Why would Japan be a safe haven? The yen even appreciates if the shock in question hits Japan itself:

Concerns about the impact of Japan’s earthquake and tsunami on the global economy intensified on Thursday as the yen surged and shares in Tokyo suffered further losses.

That’s right, mainstream economists would have you believe that a tsunami that destroyed out a big chuck of Japan’s industry, and that led to a shutdown of its nuclear power industry (supplying 30% of their electricity), led investors all over the world to seek a “safe haven” by putting their money into . . . Japan!?!?!?!?!

Yeah, that’s why the yen appreciated.

And notice that this surge of money seeking safety in Japan somehow failed to boost Japanese stock prices, which collapsed as the yen surged higher.

There’s a much simpler explanation. The Japanese central bank targets interest rates. When the equilibrium rate falls, monetary policy gets tighter and the yen appreciates. This has nothing to do with Japan being a “safe haven”.

Mainstream economists will tell you that Trump’s tariffs are inflationary. In fact, if they reduce the equilibrium interest rate and the Fed doesn’t respond appropriately, then the tariffs will be deflationary. Just as Smoot-Hawley was deflationary.

If you want to understand inflation, you need to understand monetary policy.

So what should the world do about negative interest rates? Set a NGDP level target at a high enough rate to push nominal rates above zero. There is no substitute. Japan tried massive fiscal stimulus in the 1990s and 2000s, and it completely failed.

The Fed is paying more attention to markets than they used to, but still nowhere near as much attention as they should. It’s depressing to see Fed officials discuss “long and variable lags”, which is 20th century thinking. Right now markets are telling us that monetary policy is too tight to hit the Fed’s inflation target. If they are worried about negative interest rates then they need to sharply cut their interest rate target, ASAP.

Rates are going to fall either way. It’s better they fall with an expansionary monetary policy than a contractionary monetary policy. Right now it looks like the latter.



49 Responses to “Negative rates are a bad outcome”

  1. Gravatar of Brian Donohue Brian Donohue
    7. August 2019 at 11:32

    Bravo! Preach it from the mountaintops.

  2. Gravatar of Jim Bowerman Jim Bowerman
    7. August 2019 at 11:34

    Best post of the year so far!

    My only hope is that it doesn’t seem that we have a huge deflationary force like we did with housing. That may prevent the Fed from having to act (“better lucky than good”)

    Using your driving analogy, The housing debt was a big big curve in the road (though completely navigable). The Fed still doesn’t seem to know that it controls the car, but luckily this time around the road is a bit straighter. We *may* get lucky

  3. Gravatar of Matthew Waters Matthew Waters
    7. August 2019 at 11:51

    The Euro area has 3% compound growth rate in NGDP from Q1 2013 to Q1 2019. This compares with 4.4% compound growth rate in NGDP from Q1 1999 to Q1 2008. 1.4 percentage points more NGDP should indeed solve negative nominal yields in Euro area, despite the large demand for savings.

    Unfortunately, in the short-term, the ECB has to at least threaten more extreme measures. We know such threats actually mean higher rates in the long-run, but most people don’t think that way.

    Also, no central bank should target interest rates in the market (i.e. Fed Funds rate). CBs should look at their instruments with inherent interest rates (IOR, discount window, LTROs) and have possible adjustments daily, if necessary.

  4. Gravatar of Christian List Christian List
    7. August 2019 at 12:26

    It would be kind of ironic if Powell ruined the re-election chances of Trump. But to be fair, Yellen wouldn’t have done any better, maybe even worse, she appeared to be partisan, in the sense of being anti-Trump.

    It’s also ironic that Powell seems to think he helped Trump with his small interest rate cut by a lot already, and more than he should.

    And point three of the irony: Trump seems to understand this better than most others.

  5. Gravatar of derek derek
    7. August 2019 at 12:50

    When mainstream economists say that tariffs are inflationary and Scott says that they are deflationary in that they lower the equilibrium interest rate, I think we can/should interpret the mainstream economists as identifying the mechanism by which the equilibrium rate is lowered: higher input prices (from the tariffs, duh) that depress profitability.

    Also, re: whether Fed should have an infinite appetite for offsetting bad policy, at a certain point I think we need to recognize that not everything can be about NGDP all the time. At a certain point, we need to worry about real growth, and we don’t get real growth with bad policy (e.g. Trump tariffs). If Fed reluctance causes Trump to re-think tariff wars (which would cause equilibrium rates and growth to rise!), isn’t that just as good as the Fed fully accommodating the trade war? Frankly, I believe that the 0.5% rate decrease that Trump lobbied for would just make him believe he had more room to introduce tariffs, fully offsetting the monetary policy such that we would be talking about a need for a 0.75% rate decrease to maintain NGDP growth.

  6. Gravatar of ssumner ssumner
    7. August 2019 at 13:03

    derek, It’s not the Fed’s job to try to make government policies look good or bad. To his credit, Powell says the same thing. It’s the Fed’s job to fulfill its mandate. That’s enough of a challenge, without pursuing illegal and undemocratic objectives, which will destabilize the economy.

    I recall people in 2008 saying it wasn’t the Fed’s job to bail out foolish homebuyers. True, but it is the Fed’s job to fulfill its Congressional mandate.

  7. Gravatar of George George
    7. August 2019 at 13:11

    “Venezuela may have the world’s lowest population growth at the moment, and last time I checked they were not experiencing deflation. Fels is right that the aging population is more likely the key issue.”

    That and the fact that thanks to socialism, Venezuelans went from being among the wealthiest in the world, to being so poor they’re eating out of garbage cans, and eating their pets.

  8. Gravatar of Charles Fox Charles Fox
    7. August 2019 at 14:10

    Could the fed (or other central banks) offer 0% on EUR (or JPY) reserves?

    What would prohibit the treasury (US, UK, or otherwise) issue debt denominated in EUR, sell any EUR raised above the payments, and hold the remaining proceeds to satisfy the payments?

  9. Gravatar of Benjamin Cole Benjamin Cole
    7. August 2019 at 15:31

    I agree, I think.

    Markets may be signaling that they think central banks don’t have the tools necessary to stimulate economic growth.

    The world’s largest hedge fund manager, Ray Dalio, and the world’s largest bond manager, Pimco, both recently said they think central banks ultimately will be forced into money financed fiscal programs or something similar.

    Perhaps, major market players are misinformed and do not realize that central banks already have all the tools they need to stimulate economic growth or at least stimulate nominal GDP.

    But I am beginning to think that even if you don’t believe in helicopter drops you must accept helicopter drops. The markets have concluded that central banks operate with popguns.

    If one looks at the Bank of Japan, the ECB, and even the Federal Reserve, one might conclude the markets have reasons for their misperceptions.

  10. Gravatar of George George
    7. August 2019 at 16:27

    POTUS is morally superior to all the racist Democrats attacking white people for the actions of sick individuals.

    Unlike the racists blaming Trump for the El Paso shooter, Trump isn’t blaming Warren or Bernie Sanders for the Antifa left wing Dayton shooter.

    The problem is mental illness, not race.

  11. Gravatar of Michael Sandifer Michael Sandifer
    7. August 2019 at 16:47


    I wonder if you want to comment on Krugman’s latest column about how the trade war might cause a recession. Krugman seems to minimize short-run adjustment costs, and long-term efficiency costs, and focuses mostly on the uncertainty created by what he sees as Trump’s capriciousness. I think there’s something to be said for uncertainty in this case, but think he ignores the former factors too much. I also know you’re a skeptic regarding “uncertainty”, at least in terms of the explanatory power it’s given.

    Care to comment?

  12. Gravatar of Michael Sandifer Michael Sandifer
    7. August 2019 at 16:48

    Here’s the link to Krugman’s column, for those interested:

  13. Gravatar of XVO XVO
    7. August 2019 at 17:58

    So Scott, is it time to call the recession? Or will the Fed get it’s act together?

  14. Gravatar of George George
    7. August 2019 at 18:06

    LOL, Krugman, the same prognosticator who predicted the market would tank if Trump was elected?

    Same guy who loves deficits when Democrats are in power but hates them when Republicans are in power?

    Same guy who refuses to have public debates?

    He should be tarred and feathered and whose legacy thrown into the dustbin of history.

  15. Gravatar of Matthias Görgens Matthias Görgens
    7. August 2019 at 18:14

    Scott, once you take nominal GDP growth into account, does inflation add any extra information about interest rates?

    Ie does inflation actually have any impact on interest rates by itself, or is it only via its correlation with nominal GDP?

    If the latter, we don’t even need to talk about how to measure inflation, when we want to talk about interest rates. And then all those questions about hedonic adjustment or which basket to use etc don’t come up.

  16. Gravatar of P Burgos P Burgos
    7. August 2019 at 18:30

    I think that this statement “aggregate supply hasn’t been growing much in recent years” is inconsistent with the argument that China’s economy has been growing rapidly over the past decade. Or is the statement about aggregate supply supposed to be limited to the US?

  17. Gravatar of Paul Paul
    7. August 2019 at 19:41

    Scott, “long and variable lags” is a monetarist proposition related to the gap between the effect of a monetary policy change or announcement on real output and its effect on the price level. It doesn’t mean the effects of policy on asset markets can’t be observed right away.

  18. Gravatar of George George
    8. August 2019 at 02:43

    Hong Kong has more patriots than Portland.

  19. Gravatar of George George
    8. August 2019 at 02:45

    Chinese Yuan currency is a house of cards?

  20. Gravatar of George George
    8. August 2019 at 03:08

    It is worth emphasizing that China’s been propping up it’s currency with loans HIDDEN from regulators and now that they’ve been discovered and exposed, the CEO was terminated.

    Trump has dirt on all the criminals (As commander in chief of NSA/Military Intel).

    Now how many of you TDS sufferers will grasp why POTUS put “China is a currency manipulator” in the public sphere at this time?


  21. Gravatar of George George
    8. August 2019 at 03:20

    How will the blog author manage this bad news for China having to use the same mental gymnastics and one liners brought to him by fake news?

    I’ll help:

    “The reason the PBOC had to accept $400 billion USD in loans from HSBC, TOTALLY ILLEGALLY, is becauORANGEMANBAD!”

  22. Gravatar of Michael Rulle Michael Rulle
    8. August 2019 at 04:47

    Side bar—-George reminds me of Nero—oh well.

    Question: Since we have no futures in NGDP, or a policy that targets NGDP, what other actions (e.g. negative interest rates on reserves) should the Fed take? I cannot see how they avoid not cutting next time, but I cannot imagine them doing 50 either.

    I have also noticed there is an “end of times” feel about much of the economic commentary I read. The most optimistic economist I have followed (ex prof of mine), Ed Yardeni, for the first time in years seems to describing, in his 8/5 blog, a “no way out” world.

    His reasoning could not be more opposite than yours——he believes it is not a monetary policy issue (don’t need to tell you what he says). My point, however, is when too many smart people I trust start being worried, I do not go contrarian, I try to avoid panic.

  23. Gravatar of Todd Kreider Todd Kreider
    8. August 2019 at 05:09

    “And notice that this surge of money seeking safety in Japan somehow failed to boost Japanese stock prices, which collapsed as the yen surged higher.”

    Scott, you seem to be using an alternate definition of “collapse” than most. The Nikkei in 2011:

    March 9, 2011: 10,300
    September 22: 8,600 (the low)

    A 17% slide over several weeks is hardly a collapse.

    (The Nikkei then shot up from October 2012 to June 2013 by 55%)

    The Nikkei shot up from August 2012

  24. Gravatar of George George
    8. August 2019 at 06:04



    These Demokkkrats are insane.

  25. Gravatar of George George
    8. August 2019 at 06:05

    Michael Rulle reminds me of nobody because I don’t think of him.

  26. Gravatar of George George
    8. August 2019 at 06:08

    This will backfire big on Newsweek.


  27. Gravatar of George George
    8. August 2019 at 06:08

  28. Gravatar of George George
    8. August 2019 at 06:18

    Since the socialist “Squad” now rules the Demokkkrat Party, and since the blog author wrote “Let’s hope the Dems win in 2020”, the blog author wants America to turn into Venezuela.

  29. Gravatar of John Hall John Hall
    8. August 2019 at 06:21

    There’s a lot of interesting stuff in this post, Scott. I think at the end of the day, you’re right about needing to understand monetary policy to understand inflation. However, I disagree a little on one of the finer points of the post.

    You mentioned Smoot-Hawley as having a deflationary impact by reducing the equilibrium interest rate that the central bank did not respond to. However, you seem to have lost the thread on the demographics question by this point in the post. What if demographics, whether it is through longer life expectancy or a changing composition of the population (larger share of old people than young people), has also reduced the equilibrium interest rate?

    The difficulty for the central banks is that these demographic trends happen slowly and are not immediately obvious whether something is a permanent or temporary change. Nevertheless, if the central bank does not adjust monetary policy in order to offset the impact, then it has effectively tightened monetary policy, contributing to weak NGDP growth and inflation. Indeed this is consistent with what we have observed in most developed countries in terms of nominal GDP growth and inflation, as you have discussed over the past ten or so years.

  30. Gravatar of Randomize Randomize
    8. August 2019 at 09:17

    Dr. Sumner,

    Is there any reason that the bond market should be allowed to invert? If long-term bonds are reflective of NGDP futures and short-term bills are reflective of the Fed’s target and everything in between should be positive sloping between the two… why have an inversion?

    I’m trying to imagine how a healthy bond market would ever invert or if the inversion is simply a symptom of an incorrect Fed funds target. If the yield inverts because the market is forecasting a rate cut, the Fed should cut rates now. If the yield inverts because the near-term rate is above the equilibrium, the Fed should cut rates now. Pick a reason for an inversion, the Fed should cut rates now.

    5-year treasury notes are currently yielding a full 50 basis points lower than 1-month bills, so the Fed should cut its target by at least 50 basis points as soon as possible. Is there some healthy reason for an inversion that would justify the Fed allowing it?

  31. Gravatar of ssumner ssumner
    8. August 2019 at 09:48

    Charles, I don’t know if the Treasury could offer euro debt, but if not then obviously Congress could change the law. It might actually be a good idea to issue 30 year eurobonds. I suspect the euro will appreciate by less than the interest rate differential. (Although that would have been a stronger argument last year.)

    Michael Sandifer, Uncertainty is basically a problem to the extent it throws monetary policy off course. That could happen, but it’s hard to predict.

    XVO, Recessions are almost impossible to predict. If we could predict them then we could prevent them.

    Matthias, It may have a small independent impact, but I’d focus on NGDP.

    Burgos, Yes regarding China’s growth, I was referring to the US.

    Paul, I know, but asset prices are what Fed officials should be focused on.

    Michael Rulle, I’m not sure what you are asking. Yes, a 50 basis point cut would make sense. If they don’t do that they’ll probably be making a mistake.

    It’s silly when people say “monetary policy is not the problem”. Which problem are we referring to?

    Todd, I meant that stock prices plunged sharply on news of the tsunami and its aftereffects over the next few weeks. That’s all I meant. Maybe the term “collapsed” was extreme, but they certain plunged very sharply. I was not talking about future years, but rather the “safe haven during shocks” hypothesis.

    John, I agree, that was my point.

    Randomize, Bond market inversion often signal excessively tight money, but not always. Not in 1966, 1998 or 2006.

  32. Gravatar of rayward rayward
    8. August 2019 at 10:46

    I liked Sumner better when he didn’t wear his neo-Fisherism freak flag. Sumner has a great idea, NGDP targeting, and then spoils it with theory. Monetarists will always be monetarists: pushing on a string. No amount of baiting will motivate investors to invest, not when there’s a huge gap between desired savings and desired investment. Maybe in some other time, up was down and down was up, but in today’s world, up is still up, and down is still down. I won’t say Stephen Williamson is an idiot (though he all but says Powell is an idiot), but he and his comrades won’t help us move to NGDP targeting.

  33. Gravatar of Charles Fox Charles Fox
    8. August 2019 at 10:48

    ssumner, thank you. If the treasury issued 100 EUR of a 30 year zero for 110 EUR, would you advocate selling 10 EUR to buy USD? Or would you do more/less?

    The former seems like an arbitrage for the treasury if their cost of holding onto the 100 EUR cash is small. Is your view on the currency strong enough to choose the uncertainty over the arbitrage?

  34. Gravatar of LK Beland LK Beland
    8. August 2019 at 11:34

    This weblog post makes several good points. I have semi-related question:

    Suppose that a “currency-devaluation war” is waged worldwide (which might actually happen). Paul Krugman argues that this would be a “beggar-thy-neighbor” situation.

    I’m not so sure: if all countries enact loose monetary policy in an attempt to devalue their currencies, wouldn’t that lead to strong worldwide NGPD growth, even if no change in exchange rates result from these policies?

  35. Gravatar of Matthew Waters Matthew Waters
    8. August 2019 at 12:01

    The US could not simply offer a 0% Euro account without currency risk to the Treasury or Fed. A true store of Euros is only in Euro bills or an ECB account. The ECB account charges interest and storage of bills has negative carry.

    The US probably could issue Euro denominated bonds. The Treasury in fact made a small issue of Swiss France denominated bonds in the late-70’s, to try to get a lower interest rate. Today, if the Treasury simply transfers the Euros to dollars at issuance, then it’s opening itself to currency risk.

    To be honest, the negative rates on Euro and Yen long-term debt are nuts to me. But the market apparently believes that the Euro and Yen will still appreciate against the dollar. While markets could be wrong, I do not really want the US government to be in the currency speculation business.

  36. Gravatar of Michael Rulle Michael Rulle
    8. August 2019 at 12:36

    FWIW—Yardeni defines the “problem” as the various central banks trying “the same old things that have not worked” (or stopped working) to prevent disinflation and weakening demand.

    He seems to not believe the central banks are tight–rather the opposite “ultra-easy monetary policy”–which is really hard to believe–and that we are entering a phase in the world, that is moving toward a state of perfect competition, in the microeconomics sense.

    I find his reasoning obtuse–he gives 4 big reasons—as if they were new.—but his instincts historically have been very good—he does not think monetary policy is a solution—-so I doubt you would have any patience with him.

  37. Gravatar of Christian List Christian List
    8. August 2019 at 12:38


    About your safe haven theory: It sounds good, but doesn’t this “safe haven” effect result (primarily) from the Japanese withdrawing their money from abroad and exchanging it for yen, like fishermen returning to their own port after a storm? It is not a safe haven, but it is their haven, and in uncertain times you sail to your own haven, right?

    I know what you’re going to say, “WRONG!”

    Okay then, but why?

    @LK Beland

    Yeah, Scott wrote about it several times in the past.

    It would NOT be a “beggar-thy-neighbor” situation like Krugman says.

    It would still be effective monetary policy, which is kind of obvious if you think about it.

  38. Gravatar of Matthew Waters Matthew Waters
    8. August 2019 at 12:47

    That Yardeni argument is really in vogue. But if you’re an alien first looking Euro-area NGDP, the neg-rate/QE policies have done alright: 3% NGDP growth 2013-2019 vs. essentially 0% 2008-13.

    3% growth isn’t great, but it sure as hell beats 0%. The unemployment rates in different Euro countries also reflect it. It’s only “not working” in the sense of bank profits or earnings to conservative savers.

  39. Gravatar of Todd Kreider Todd Kreider
    8. August 2019 at 13:01

    “Todd, I meant that stock prices plunged sharply on news of the tsunami and its aftereffects over the next few weeks. That’s all I meant. Maybe the term “collapsed” was extreme, but they certain plunged very sharply.”

    I’m not trying to nitpick here but stock prices didn’t ‘plunge very sharply’ over the next few weeks:

    Feb 25: 10,500
    Mar 9: 10,300 (earthquake)
    Apr 22: 9,700
    May 15: 9,600
    Jun 17: 9,400 (13 weeks later)
    Jul 8: 10,100 (a brief rally)
    Aug 10: 9,000

    So the Nikkei fell just 6% after 6 weeks after a huge earthquake, which isn’t at all a sharp plunge. 7 weeks later stocks only fell another 3%.

  40. Gravatar of George George
    8. August 2019 at 13:28

    Fake news = Enemy of the People.

  41. Gravatar of ssumner ssumner
    8. August 2019 at 16:30

    Rayward, If you think I’m a neofisherian then you are even more clueless than I thought. Have you never heard the phrase “reasoning from a price change”?

    Charles, I don’t have an opinion on that.

    LK, If it’s done with easy money, it would not be a zero sum game. If done with high saving policies then it might be zero sum. But that ain’t going to happen. Trump doesn’t believe in planning for the future.

    Michael and Matthew, I can’t comment on Yardeni, but I’d suggest ignoring most commentators on monetary policy; 99% of them are worthless. If they say the Fed is out of ammo, just stop reading.

    Christian, A fisherman would return home when the water is calm where he is (away from home) and stormy at his home port? Whatever you say.

    Todd, I was relying on memory. Stocks did crash, but it was over 5 days, not weeks. Stocks fell from 10,400 to 8600. That’s a huge crash in 5 days. I was wrong in saying “weeks”.

    Of course stocks later rebounded, but that has absolutely no bearing on the claims made in the post, which addressed the immediate market reaction.

    My points is that a flood of investment money into Japanese stocks seeking “safe haven” would not generally be associated with a market falling 17% in 5 days.

  42. Gravatar of Todd Kreider Todd Kreider
    8. August 2019 at 22:11

    Todd, I was relying on memory. Stocks did crash, but it was over 5 days, not weeks. Stocks fell from 10,400 to 8600. That’s a huge crash in 5 days. I was wrong in saying “weeks”

    Scott, you are simply full of shit here. Can’t you look up the Nikkei and report accurately? Why lie about this?

  43. Gravatar of Todd Kreider Todd Kreider
    8. August 2019 at 22:21


    Here’s the little problem. If you are so willing to lie about something
    like what the Nikkei did a week after the earthquake that anyone can look up, then what else are you willing to lie about when you make an error?

  44. Gravatar of Alex Mazur Alex Mazur
    9. August 2019 at 03:54

    With respect to the negative nominal interest rates, I am extremely surprised that Scott did not mention the textbook problem with them: if interest rates are low enough, it makes sense to build vaults and hire guards to store cash.

    With respect to the argument that longer life expectancy leads to a higher supply of investment, and hence lower real interest rates, I would like to notice that savings rate in the US shows no signs of increase.

  45. Gravatar of Todd Kreider Todd Kreider
    9. August 2019 at 06:10

    “Todd, I was relying on memory. Stocks did crash, but it was over 5 days, not weeks. Stocks fell from 10,400 to 8600. That’s a huge crash in 5 days. I was wrong in saying “weeks””

    March 11 open 10,300 close 10,300
    March 12 closed for weekend
    March 13 closed for weekend
    March 14 close 9,600
    March 15 close 8,600
    March 16 close 9,100

    So down 17% over three trading days but down 12% over four trading days.

    Also, you wrote: “And notice that this surge of money seeking safety in Japan somehow failed to boost Japanese stock prices, which collapsed as the yen surged higher.”

    That drop was almost entirely psychological due to alarmism in the Japanese government and the media over the nuclear accident.

  46. Gravatar of Todd Kreider Todd Kreider
    9. August 2019 at 06:18

    Oh, I forgot to add that I jumped the gun and said you lied. Sorry about that.

  47. Gravatar of Christian List Christian List
    9. August 2019 at 12:41

    Christian, A fisherman would return home when the water is calm where he is (away from home) and stormy at his home port? Whatever you say.


    I wrote “after” the storm. Reading comprehension?

    Imagine you are at sea and a tsunami hits your hometown. Of course the fishermen will sail to their home port right after the storm, as fast as they possible can.

    Autistic people may not do that, but “normal” people want to see how their family, their friends, their houses, and their town are doing. And then they want to rebuild everything. And when they have money abroad, they will withdraw the money as quickly as possible and exchange it into their home currency. Oh look, that happened in Japan, who would have thought so, it’s a miracle.

    I don’t know if that contradicts your theory or not, you’re the expert. Maybe it fits together, I don’t know.

  48. Gravatar of ssumner ssumner
    9. August 2019 at 16:25

    Alex, Supply of saving or quantity of saving? After all, rates have dropped sharply.

    Todd, You said:

    “That drop was almost entirely psychological due to alarmism in the Japanese government and the media over the nuclear accident.”

    So? Do you even know what we are discussing? You need to take a deep breath and go back and read the post. And I used the last closing price before 3/11. What’s wrong with you people? Get a life.

    Christian, You are so hopelessly lost there’s no way I can help you.

  49. Gravatar of Todd Kreider Todd Kreider
    9. August 2019 at 17:01

    Scott, yes, I know what your statement was and it doesn’t make sense in the context of the Japanese market being rattled by nuclear fears. Those were always unfounded but were fueled by an incompetent, inexperienced anti-nuke at the head of the U.S. Nuclear Regulatory Commission.

    You also kept talking about the “collapse” (an exaggeration) of the Nikkei during the weeks that followed so when you said 5 days later I thought you were just trolling.

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