And while Barnanke and Summers have convinced me not to hold my breath waiting for higher interest rates, Richard Scylla has me convinced that they do rise at some point.
Indeed, what better time to predict a rise than at when they are at a 4,000 year low, and even occasionally negative?
Interest Rates, Trust and Prosperity
We should bear in mind that as trust and prosperity increase, interest rates decline. Periods of high interest rates tend to be "nasty, brutish and short". High trust, and economic development have always lead to lower interest rates. So we should also be grateful. It's a sign that much is going right - even if it's painful for savers.
Barnanke and Summers are also worried about policy if we were to tip into another recession. With interest rates so low, what other policy levers would he have? Ben Barnanke, writing for the Brookings Institution writes about some of the more unusual alternatives:
Larry rightly focusses on fiscal policy. The United States is long overdue for an increase in infrastructure spending and Obama's first stimulus failed. Perhaps Hillary will get it right.
This all leaves me wondering how long it will take for the rest of the civilized world to catch up to the Swiss view of infrastructure - in which spectacular feats of engineering - like the Gotthard Base Tunnel are planned 50 years out or more.Read more...