Comments on: The hidden dangers of low interest rates Sat, 23 Mar 2013 13:49:31 +0000 hourly 1 By: robb1 Fri, 13 Jan 2012 19:21:55 +0000 Higher interest rate can be achieved with economic growth and subsequent inflation.

At present there is scarcity of both.

As far as pension funds going dry, perhaps those “promises” where too fat to begin with.

Most of us have only SSA benefit to live with.

By: Amelia196 Thu, 12 Jan 2012 19:47:08 +0000 The first comment here by “Unclepie” pretty much nails it.
Historically, interest rates tend to swing in a broad arc,such as a pendulum. When the pendulum changes direction, historians will only remember Ben Bernanke with amusement. When the pendulum changes direction, there will be a bloodbath in the long end of the bond market.

By: Bond_Canuk Thu, 12 Jan 2012 19:23:23 +0000 A good article but with some serious errors. The 10 year US Treasury bond yield has been stuck around 2% for months now. Where did Mr. Johnston see they were trading at 3.33% last week??? If the author can’t get a correct quote on the most liquid bond market in the world my propensity to pay serious attention to him wanes considerably.

By: matthewslyman Thu, 12 Jan 2012 13:29:10 +0000 @charliethompto: personal income tax rates are not what is causing the rich to avoid investment. Such rates are at historically very low levels for the ultra-wealthy. Yet they are not investing. Instead, they are converting all their money into gold, to ride out the storm, because they have no confidence in the economic management of the major industrialised nations. Why not? Because they know that as long as governments pander to the populist demand for “lower taxation”, they will either run a huge deficit or risk a major working-class revolt. They know that paying Paul with money that doesn’t exist must surely be followed by borrowing from Peter… That currencies must inevitably be devalued so rapidly that it’s difficult to make money on bricks-and-mortar, cash-based business. They know that even the bricks-and-mortar are economically depressed at the moment, due to dishonesty and corruption on a grand scale. They know that these problems fundamentally haven’t been fixed yet. So why invest?

By: charliethompto Wed, 11 Jan 2012 18:55:32 +0000 “This is the main reason why we must insist the wealthy begin paying their income taxes once again, because we CANNOT compensate for the loss of that revenue in any other way — certainly, not by cutting back on spending (except, of course, in military spending, which will never happen).”

One little problem. If we tax the wealthy to the point that there is no incentive to invest in the US, then they logically will stop investing here and we will exacerbate our unemployment problem.

Would YOU stay here to see your taxes dramatically increase when simply moving would solve the problem?

We could, of course, ask all of the wealthy to move their official residences to the Bahamas. Then the power brokers of the world that, for the most part, now reside in the US, would not skew the wealth numbers as sharply as they do. Then the Left would be happy – though our country would be much weaker and poorer.

Oh, details, details…

By: AldoHux_iv Wed, 11 Jan 2012 16:50:29 +0000 Just end the fed, break up the banks, and replace congress with actual policymakers that will do the right thing for the American people (not corporations), and create (tax) incentives for investment in local areas of the economy.

By: pdowney Wed, 11 Jan 2012 16:42:57 +0000 The interest rates on savings accounts has been plummeting for so many years (decades) that one can hardly wonder why people have lost faith in having them.
Credit cards are the new cash and everyday people push them to their limits, substituting the mirage of increased spending power for a more solid financial profile. And now the housing market has been wrecked. Right now, I rent (no interest deductions) because of the failure in fair and stable housing costs.
I wonder if banks could come up with a shared ownership property offering no damage to either them or us?
That would stimulate some business again.

By: LEEDAP Wed, 11 Jan 2012 09:07:14 +0000 If I were a free market purist, which I’m not, I’d say that low interest rates reflect low demand. Low demand generated by low wages and a loss of equity. Once prices spiral down, the market will find equilibrium where the free market thrives.

But getting there is another story. The pain of further drops in prices, especially home values will lead to more defaults, which accelerates the race down to equilibrium. Once prices are rock bottom, those who saved and had income will buy up everything and the concentration of wealth will be even greater.

Seems clear to me that we need to print some cash to push a healthy 3% inflation rate so people can pay back their loans and stem the flight from saving. We could also do some more Government spending without going into debt by taking the capital the rich are sitting on and do some good with it. Some rich folks like Warren Buffet even think this is a good idea. I guess they understand that you can’t decimate your middle class if you want a thriving economy.

By: Ed62 Wed, 11 Jan 2012 02:20:23 +0000 This article (and most of the comments) show a basic misunderstanding of macroeconomics. It is the REAL economy that matters — how much is being produced and how many people are employed. All the rest are distributional issues. It is the size of the pie that matters, not how it is cut up.

Higher interest rates — which the article seems to be advocating — would depress the economy even more than it already is. Bernanke knows this, he is doing an excellent job considering the limitations of monetary policy.

By: TheOldSodbuster Wed, 11 Jan 2012 01:33:06 +0000 Interesting. Mr. Johnston is proposing that in risky times that interest rates rise to reflect that risk. Radical. But wait. Wasn’t that what we were taught in high-school?

The point of interest was to reflect the risk profile. Are these stable, or risky times.
The system seems rigged by the big five players that compose the Fed, and control the Open Market Committee that sets the rates.

King Knut was making a point when he walked to the beach and ordered the tide to go out. Dang, the tide did not obey. The point was that there are limits to power. Apparently, some in the banking world do not see this point. Just like the bankers in Hong Kong would not write down their losses and created the opium wars.