Negative interest rates spiral to ever lower depths

by Chris Becker

An interesting chart from 720Global:

Federal Reserve (Fed) stimulus comes in two forms as shown above. First in the form of targeting the Fed Funds interest rate at a rate below the nominal rate of economic growth (blue). Second, it stems from the large scale asset purchases (Quantitative Easing -QE) by the Fed (orange). When these two metrics are quantified, it yields an estimate of the average amount of stimulus (red) applied during each post-recession period since 1980. It has been almost ten years since the 2008 financial crisis and the Fed is applying the equivalent of 5.25% of interest rate stimulus to the economy, dwarfing that of prior periods.

Basically it suggests that each period of post-crisis stimulus has seen a much higher level of stimulus than before, for the same result. That implies a broken system of positive feedback loops between asset bubbles and the largesse in central bank support that follows.

 

 

 

Comments

    • Yep, if the medicine doesn’t work, increase the dose.

      However the big mystery is where is all the inflation that this money printing should have generated. Sure we see asset inflation, but CPI and PPI are low. Where has it gone?

      Perhaps QE means a handout for the rich, who don’t buy most stuff on the CPI, but invest it in assets?

      • It’s pretty obvious trickle down economic multipliers are rubbish and unproven theory. In comparison KRudd’s fistfuls of cash handouts are blunt but much more effective.

      • Inflation enters the economy at discrete points — it isn’t like water, which fills up from the lowest point and spreads to every nook and cranny. QE injects money into the financial system, not into the economy. There is trickle-down but it’s fairly negligible. The inflation is hiding in plain sight — unless you’re a Central Banker or economist. Look at a Big 4 bank balance sheet and check out where all the lending is happening: residential property. That is where the lion’s share of inflation is because that’s where the lending is directed. Lending generally creates new money and an expanding money supply is responsible for inflation. Nothing else. CPI is totally bogus. It’s a distraction for plebs.

  1. Chart is great. A lot of unwinding to happen in the next crash, perhaps it will be enough to break the loop this time around?

  2. The Federal Reserve are trying to grow a paddock full of hay but don’t understand that their sprinkler system does NOT work and only a corner of the paddock is getting watered and fertilised.

    Rather than fix their sprinkler and fertiliser system they just turn the tap a few more turns and hope for the best.

    They are impressed by the size of the hay in the corner that is getting drenched but remain puzzled why the rest of the paddock is wilting and turning to dust and the cows in those sections of paddock keep moaning.

    One would think after 10 years they might start taking a long hard look at the sprinkler and fertiliser system?

    Nope that would involve a degree of self criticism that your average Central Banker institution would find repulsive.

    Especially when the cows standing in the tall hay keep blowing them kisses, offering them free squirts of full cream and telling them what a great job they are doing.

  3. Now overlay how wealth accumulates to the lucky few, and you see the whole fkn train crash.

  4. Ironically the smallest stimulus to have the biggest impact of all ushering in decades of prosperity was the new deal.

    Stimulus via productive infrastructure is by FAR the greatest stimulus there is – there are LOTS of modern examples and those countries are absolutely SMASHING the west. See Asia.

    .

    • Yep – productive investment is what is required not the speculation masquerading as investment that has been standard issue by our banking and monetary system since the era of ‘misregulation’ began.

      • But but but, I want to build a million malls or franchise buildings on zero interest rate loan so everyone is walking distance to McGhosts buildings.

    • Helicopter money is not reaching the ground; seems like digital digits only drift to the penthouse class – by design.

  5. proofreadersMEMBER

    The rape of savers by central bankers just gets bigger and goes on for longer, every time they have to bale out their private banker masters?

    • The problem is that there is no sign anywhere of any real change in policy. So when it gets nasty they will just continue to do teh same thing except, as pfh says they’ll open the gate valves a lot more. As others, like nyeta et al point out, each in their own way, the volume has to be some squared function to stay still so maybe asset prices are in the early stages of nominal rise?
      Again as long as the Fed and ECB continue with this policy we can expect a fair bit of the printed money to end up here pushing the A$ and the whole speculative bubble to yet higher levels.
      Just sayin’
      Ain’t it grand!!

      • P.S. That’s not to say things can’t go down a bit. Just when it does they will probably throw money at it in volumes we yet can’t think in.
        First it was millions; then billions, then Trillions; next Quadrillions…just rolls off the tongue really.

    • casewithscience

      @Proof

      As with any system of barter or trade – your money isn’t worth anything. It never was. You can hardly complain now. Even when currency was backed by gold, its value only ever came from other people wanting that gold. The IOUs we pass each other are effectively pointless except as a confidence trick. The things that are true value is production and innovation. Houses and Holes are giving us tonnes of money, but have hollowed out production and innovation. Forget saving – it is potentially going to go to the basement unless it is in the form of production or innovation.

      • “Forget saving”
        Yup! And the problem with that is that we. as a nation, will continue to accumulate debt and sell off our children’s future while the world hurtles on using up the resources of the planet at the fastest possible rate.