{"id":17894,"date":"2016-02-17T12:14:09","date_gmt":"2016-02-17T17:14:09","guid":{"rendered":"http:\/\/olduvai.ca\/?p=17894"},"modified":"2016-02-17T12:14:09","modified_gmt":"2016-02-17T17:14:09","slug":"if-zero-interest-rates-fixed-whats-broken-wed-be-in-paradise","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=17894","title":{"rendered":"If Zero Interest Rates Fixed What’s Broken, We’d Be in Paradise"},"content":{"rendered":"

If Zero Interest Rates Fixed What’s Broken, We’d Be in Paradise<\/a><\/h3>\n

Rather than fix what’s broken with the real economy, ZIRP\/NIRP has added problems that only collapse can solve.<\/i><\/p>\n

The fundamental premise of global central bank policy is simple: whatever’s broken in the economy can be fixed with zero interest rates (ZIRP).<\/b>\u00a0And the linear extension of this premise is equally simple: if ZIRP hasn’t fixed what’s broken, then negative interest rates (NIRP) will.<\/p>\n

Unfortunately, this simplistic policy has run aground on the shoals of reality:<\/b>\u00a0if zero or negative interest rates actually fixed what’s broken in the economy, we’d all be living in Paradise after seven years of zero interest rates.<\/p>\n

The truth that cannot be spoken is that zero interest rates (ZIRP) and negative interest rates (NIRP) cannot fix what’s broken<\/b>–rather, they have added monumental quantities of risk that have dragged the global financial system down to\u00a0crush depth<\/a>:<\/p>\n

Crush depth, officially called collapse depth, is the submerged depth at which a submarine’s hull will collapse due to pressure. This is normally calculated; however, it is not always accurate.<\/i><\/p>\n

Indeed, the risk that has been generated by ZIRP and NIRP cannot be calculated with any accuracy.<\/b>\u00a0The sources of risk arising from NIRP are well-known:<\/p>\n

1. Zero interest rates force investors and money managers to chase yield, i.e. seek a positive return on their capital. In a world dominated by central bank ZIRP\/NIRP, this requires taking on higher risk, as higher yields are a direct consequence of higher risk.<\/p>\n

The problem is that the risk and the higher yield are asymmetric:<\/b>\u00a0to earn a 4% return, investors could be taking on risks an order of magnitude higher than the yield.<\/p>\n

2. To generate fees in a ZIRP\/NIRP world, lenders must loan vast sums to marginal borrowers–borrowers who would not qualify for loans in more prudent times.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n","protected":false},"excerpt":{"rendered":"

If Zero Interest Rates Fixed What’s Broken, We’d Be in Paradise Rather than fix what’s broken with the real economy, ZIRP\/NIRP has added problems that only collapse can solve. The fundamental premise of global central bank policy is simple: whatever’s broken in the economy can be fixed with zero interest rates (ZIRP).\u00a0And the linear extension […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[4365,124,127,195,431,488,534,1389,4924,1939],"class_list":["post-17894","post","type-post","status-publish","format-standard","hentry","category-economics","tag-borrowing","tag-central-banks","tag-charles-hugh-smith","tag-debt","tag-interest-rates","tag-loans","tag-monetary-policy","tag-nirp","tag-oftwominds","tag-zirp"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/17894","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=17894"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/17894\/revisions"}],"predecessor-version":[{"id":17895,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/17894\/revisions\/17895"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=17894"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=17894"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=17894"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}