负利率俱乐部

Feb 9, 2016 Daniel Gros

布鲁塞尔—在最近十年的大部分时间里，中央银行在遏制强大的全球通缩力量方面只取得了有限的进展。2008年以来，美联储将利率维持在零水平，同时还通过大规模债券购买操作进行了多次前所未有的资产负债表扩张。英格兰银行、日本银行和欧洲央行也纷纷步美联储后尘，都实施了各自版本的所谓“量化宽松”（QE）。但通货膨胀在任何地方都没获得合理的提升。

尽管这些国家都在与通缩压力作斗争，但它们的货币政策——以及经济表现——正在分化。美国和英国现在的增长足够强势，已经可以退出扩张性政策并提高利率，而欧元区和日本正在加码QE，将政策长期利率进一步推向负区间。这一区别的原因何在？

简短地回答是债务。几十年来，美国和英国一直有经常项目赤字，因此是债务国，而欧元区和日本一直有外部盈余，因此是债权国。负利率有利于债务国而不利于债权国，因此全球经济危机之后所引入的负利率刺激了美国和英国的复苏，但对于欧元区和日本基本上没有什么效果。

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Chandrashekar Tamirisa Apr 11, 2016

The financial crisis of 2007-2008 has seen an unprecedented monetary policy response across the world to prevent what was feared could be a depression. The U.S Federal Reserve (Fed), Bank of England (BoE), Bank of Japan (BoJ), and the European Central Bank (ECB) slashed interest rates to zero or close to zero, engaged in quantitative easing by purchasing government bonds to increase money supply, and BoJ and ECB have now deployed negative interest rates to spur investment, growth and inflation. As a consequence, the reserves held by banks at their central banks have ballooned into trillions of dollars, yen and euros without those funds circulating in their economies and in the global economy as real investment.

Global growth is continuing to slow and commodity prices are at their bottom especially because China is executing a structural transformation of its economy from one of real investment and exports to consumption and services. India, despite strong growth, is taking further measures to ensure that monetary policy easing is indeed transmitted to the economy to raise real investment to create jobs and more growth.

Such extraordinary monetary expansion not achieving the desired goals of growth and inflation in the global economy is leading central bankers to conclude that monetary policy alone cannot be expected to achieve those goals and that fiscal and structural policies are necessary. But the question of why such a monetary expansion has proved to be ineffective begs to be examined.

Many of the G20 countries, with the exception of a few such as Germany, are exercising caution in deploying expansionary fiscal policy to produce growth. Many of them already have high debt-to-GDP ratios and are being, therefore, careful to borrow more. Structural reforms such as setting and meeting fiscal targets; trade liberalization, that is, lifting restrictions on imports and exports; removing price controls and state subsidies; encouraging more investment (for example, by encouraging foreign direct investment, FDI, and foreign institutional investment, FII, flows); and improving governance and fighting corruption are being put into place to create a favorable climate for real investment. But these take time. So, it is necessary to think out of the box about the fiscal and monetary policy mix that is necessary to attain the goals of restoring growth and producing inflation.

Growth to get out of the Great Depression came because of government public works and World War II, not because of monetary policy. However, nothing precludes monetary policy from supporting fiscal incentives to provide targeted money supply to increase real investment in specific sectors and industries in an economy. China has achieved historic growth rates doing precisely that: the People’s Bank of China (PBOC) supplied money for initiatives targeted by government planners. Monetary, fiscal and structural policies in China have executed industrial policy.

There has been an outright rejection of monetary policy executing industrial policy in the United States and in the Group of Seven countries (G7) in general because doing so goes against the grain of the economic orthodoxy of free market capitalism. Banks have been bailed out during the 2007-2008 financial crisis with the central banks engaging in industrial policy in the financial sector but it has been left to the financial markets to figure out where and when in the real sector to invest and how much (the U.S government had to bail out General Motors using tax payer money and not the Fed despite the Federal Reserve Act allowing it to do so). The result is poor monetary policy transmission. The monetary expansion instead is being used by corporations to raise money in the markets through the issuance of corporate bonds, raise venture capital for start-ups based on outlandish evaluations, for appreciating stock values, and by using stock buybacks with declining revenues and earnings (profits) to boost stock prices. Stock prices are ceasing to be truly reflective of corporate performance. In this scenario it is doubtful when the global economy will fully recover to healthy growth.

It is time to dispense with economic orthodoxy and let monetary policy do industrial policy around the world by supporting prudent fiscal and structural policies.
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Alexandros Aslanidis Mar 4, 2016

Daniel Gros, ever the hawk. Maybe that's why it's always hard to take him seriously.

First of all, full empolyment hasn't been reached in the US. Secondly, bullish employment figures conceal the wage stagnation that we observe worldwide. Thirdly, Draghi has to set monetary policy not just for Germany but for the rest of the Eurozone as well.
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Jose araujo Feb 17, 2016

I completely agree with you, and a) is related with c) since what's making investment low is the lack of trust in our institutions.

Regarding growing through exports, I think its just an economic myth. There is no relation exports and growth, many exporting countries have low growth, and many developed countries have low exports.

Growing through exports makes sense in proto capitalist societies with lack of capital. In a country with free flow of capital exports has the engine of the economy is a myth. You first develop internal demand -> create a strong competitive internal market -> and then you export because you are competitive.

if you are exporting without a strong internal market, its because your competitive advantages are artificial, and that only leads to the capture of resources by the exporting industries and things like the Dutch Disease...
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Jose araujo Feb 17, 2016

@Jose,

The big problem is that internal devaluation increases the problems with debt, and honestly it makes no sense at all, and more if you think your trade partners are also facing deflation.

Problem of external deficit are imports, so to curb imports you increase import taxes you don't repress internal demand, that's absurd.

Problem with competitive position is productivity, and to increase productivity you don't lower wages, that's just absurd, you either change technology or increase output - those are the determinants of productivity.

Growth is a virtuous cycle fueled by internal demand and positive expectations, that's why when you are in a low wage / low employment region you don't say you are facing a highly competitive/potential region
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Nathan W Feb 15, 2016

Does that mean that they'll start sending me cheques as a function of the remaining amount on my student loan?
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Gary Palmero Feb 14, 2016

In a negative interest rate economy, the internal creditor (the saver) has to draw down capital rather than spend interest. He will sooner or later run out of capital, therefore, his propensity to spend declines rather than increases. In a debt economy, production has to increase so that the debtor can earn capital to pay down or stabilize his debt. The major borrowings in a negative interest rate environment come from agency borrowers where the agent does not have to personally pay back the debt and rarely adds to production(this is mostly municipal and NGO borrowing). Ergo, chaos.
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jose sousa Feb 14, 2016

In a liquidity trap environment, monetary expansion should be combined with fiscal expansion to propel demand and gross product, which would then stimulate inflation to adequate levels. Particularly in the eurozone, excedentary economies have the conditions for that fiscal expansion while in deficit countries should proceed with structural reforms to increase competitiveness and improve their exports profiting from the increase of external demand. Yet eurozone leaders seem to be more focused on each own problems and politics then on an overall articulated model of combat of the so called sovereign crisis.
- jose sousa Feb 15, 2016
  
  Thanks José Araujo for your feedback. I understand your point of view, but speaking strictly of deficit economies like the Portuguese one (high debt, double deficits), very open to the UE and having a financial system highly stressed, it seems to me that their internal priorities should go to:
  a) stabilize financial system
  b) increase exports
  c) atract and increase investment
  The recent internal devaluation as well as higher labour flexibility helped to boost exports as you may see at http://www.tradingeconomics.com/portugal/exports.
  And yes, a certain level of higher internal consumption, less dependent on imports, may have a positive effect on the product and employement, but it really seems to me that due to the eurozone framework a relative small and open economy as the Portuguese one depends more on a)+b)+c) + growth on external demand.
  Thanks and regards
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- Jose araujo Feb 15, 2016
  
  José, I completely agree with your view, but there is a point where I don't think its the best way.
  
  Instead of forcing poor performing countries in the Eu to go through painful deflation, why don't we allow them to stimulate internal demand and curve imports through regular mechanisms like import taxes?
  
  I also have strong doubts about the competitive value of wages, we just have to look at the evidence. If wages were determinant for competitive position of a country, then Portugal would be much more competitive then Germany....
  
  You see, when we go through a poor depressed, high unemployment, low wage region, we don't say... look, here is a region with high potential of growth...
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Rik Rijs Feb 14, 2016

I would like to add to the 3rd paragraph: Inflation is the result of different forces. One is demand. Demand in the eurozone does not really grow. Those with money have what they need, those without money can't stimulate demand. Very interesting, and if they do they buy cheap imported products. The whole picture is called market saturation. Even negative interest rates won't solve this: worse: those with money feel as if they lose and may become even more reluctant to spend as stated by the author in paragraph 6.
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Ronald Calitri Feb 14, 2016

So, basically, you are debating over the Fisher relation; and your resort to the backward-bending supply curve of savings - applies mainly to individuals, so may be a small drag on adjustment, but is vastly out-weighed by more normal behavior of business and finance investors.
The problem with the Fisher relation is that there are _three_ variables in it, nominal interest, real interest, and prices. As you say, in a closed system these are intertwined; but in an open system, it looks like prices are independent - in world terms - deflation is a persistent phenomenon in most commodities [cumulative impact of sci/tech investments]. Trying to work against this real phenomenon by raising interest rates is like trying to move a rock by pushing on a string tied to it.
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Richard Solomon Feb 14, 2016

As I had never read ab out the distinction between creditor and debtor nations in the context of monetary policy this was interesting to me. I must wonder, however, how this applies to Japan? It is a debtor nation, right? Should not its QE programs be helping to raise inflation?

The author fails to note is the importance of fiscal policy in this discussion. Can not governments stimulate demand via investments in infrastructure, incentives applied to get consumers to spend more, tax policy which encourages corporations to invest more and/or raise wages substantially, etc?

In the case of Japan, Abe has relied on the BOJ/monetary policy to do all the heavy lifting. He has done little, if anything, to stimulate the economy from the fiscal side of things.
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Nikolas Papavlassopulos Feb 13, 2016

Basic economics courses cover the curious case of the “backward-bending supply curve of savings”:
Yes modern economic thought has progressed a lot. Its habitat is in a circle and everything bends!
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David Kinder Feb 12, 2016

FULL EMPLOYMENT IN THE U.S.????? My God man, are you mad? You have no idea how many people cannot find a decent job! This only proves that intellectuals are far removed from the realities common people experience.
There is a global depression brewing and all of the pontificating by central bankers and their minions will not change the FACT that two quadrillion dollars in global derivatives will drive the world leveraged debt off the cliff. David Stockman recently stated that the world governments debt has increased 60% since 2008 to $225 trillion and the U.S. will experience a 1930's type recession. ( No one wants to be the one to say the word "depression.") THE WORLD IS SWIMMING IN AN OCEAN OF DEBT AND IT IS LEVERAGED WITH INTRUMENTS MOST ECONOMISTS NO NOTHING ABOUT!!!
- Jose araujo Feb 12, 2016
  
  Not only full employment, but many FDR of New York for instance, that we are only 1% bellow product potential....
  
  What kind of reality they live inn? Do they even talk to people or businesses?
  
  Do they really believe that if they talk to a business about their potential production for next year they would say.... hum 1% more that's the most I can produce...
  
  The level of blindness is unbelievable...Sure proof that psychopaths are the ones most fit for high positions in our institutions....
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Jose araujo Feb 12, 2016

Interesting on how this liquidity trap denial has been working. Such is the prejudice that everyday I read articles from the liberal wing of economy where efficient markets are the mantra finding weird explanations for the low interest rates.

If we have low interest rates its because offer far outpaces demand for money, and if this situation continues, nothing can be argued if the FRB maintains the zero policy on interests.
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Jose araujo Feb 12, 2016

@Steve

Sorry, but it has everything to do with risk. You see after a financial crisis there is an "irrational" fear of losing money that overrides the desire for profit, hence the liquidity preference, and lack of investment.
Lack of investment triggers a demand shock that conduces to lower activity and lower profit.

In the center of the problem is risk aversion. That's why QE was designed. Facing liquidity trap, the only way for monetary authorities to regain traction is through inflation expectations.

Recent events proved Keynes. Rising the directory interest rates (or lowering them) have no impact on interest rates levels.We are a e the ZLB because of risk aversion,not QE. What more needs to be done to proved that.

Janet just made a fool out of herself and the FRB lost the remains of credibility it had. Yeld curves remain flat, and will be flatter the more confidence in the institutions we lose.
- Jose araujo Feb 18, 2016
  
  I agree Steve, but this is a Egg Chicken question,
  
  My hypothesis is that risk aversion led to a demand contraction that led to low profits and low investment.
  
  I support this view on the evidence we have: High risk Premia, Low risk free rates, increasing speed of money velocity, absence of inflation in an expansionary monetary environment.
  
  I say the confidence has nothing to do with government confidence..Risk aversion is because we don't trust our institutions. We don't trust regulators, rating agencies and corporations.
  
  Deutsche bank crisis is an evidence of this dis-trust, Portugal recent 4 bank bankruptcies are a case also. VW case, etc etc
  
  We don't trust the information we are being fed, and we don't trust the traditional mechanisms like auditors and rating agencies.
  
  Now you seam to defend the neo-classic view of the crisis. That some how something is preventing us from going back to full employment (wage stickiness), that we are at the limit of the potential (secular stagnation) and that unemployment is structural.
  
  The fact remains that even defending this views, the world has produced more in the past. So the case for artificial demand is void, it doesn't matter if its artificial, we did supply this demand before and there is no reason for not doing it again.
  
  I won't go into the other holes in the theory. They are very well known, and that's why they have been dismissed so long time ago.
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- Steve Hurst Feb 12, 2016
  
  Hi Jose
  
  I know quite a bit about risk and profit Jose and I can tell you that people who take risk are used to it. Risk is a perception until it is a loss. I am well aware of the bias against loss warping assessemnt and there are other bias issues as well.
  
  However - You do not take risk unless there is profit. The fact people are buying negative rates can only be currency speculation related or because they believe there is no profit in the private sector in the short term. This is not some self fulfiling prophesy - the facts are saying caution. You are convinced it would seem that it is lack of trust in governance and I am saying it is the private sector situation which is the main problem, other than labour reform
  
  In the UK post 2008 two graphs were produced, one for public expenditure cuts and one for growing tax revenues. The idea was the graphs would cross with recovery. Public expenditure would drop and tax revenue would rise. They didnt - public spending cuts were right on plan but tax flatlined - so it is inevitable further cuts have to happen. Recovery has been low wage based - productivity a problem
  
  As the UK had no choice other than to reform labour practice decades ago due to N Sea oil pushing Sterling high if the UK has problems then those countries in the EU that didnt reform are deep in it. France at the front of the queue
  
  So I will say it again Jose. The whole problem is investment is not made without the prospect of profit. All investment is risk. The fact there is a lack of investment and QE and ZIRP is all interrelated with the lack of opportunity and the only way labour reform can happen is by it getting worse so it will get worse. Labour reform is the key in the EU. Draghi is doing a remarkable job but he is just pushing the inevitable back in the diary. IMO that is why he keeps saying Central Banks cannot do it all
  
  Saudações, which I understand means regards, just in case it doesnt : )
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G. A. Pakela Feb 12, 2016

Negative interest rates will simply cause an enterprising entity to offer storage of hard cash, with some lending at the margin in order to cover the costs of that storage and offer this as an alternative to a negative bond.
- Peter Schneider Feb 12, 2016
  
  That's why the ECB now plans to abolish the 500 eure note: Increase the storage costs of hard cash.
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Paul Daley Feb 12, 2016

Gary Stegen has a nice comment below, but the key points are that the central banks reacted "with the only tools they have available," and tried to fight a surplus of savings by adding to that surplus, without considering how such a flood of funds might distort capital markets. Central banks definitely need to rethink their playbook, but it hardly makes sense to develop rules, as Stegen suggests, that would distort trade just to make room for central banks to distort capital markets.
- Gary Stegen Feb 13, 2016
  
  Reply to Paul Daley
  Thank you for responding to my comments. I am not proposing changes to trade rules to “make room for central banks to distort capital markets.” Rather, the changes are intended to reduce the pressure to implement excessive monetary easing, which results in distortion of capital markets, etc. Connecting all the dots to explain this in a few brief comments is not easy. A few points follow.
  The persistent surplus countries have an excess of production over internal consumption plus investment. Said another way, these countries are successful in exporting but then fail to spend their export earnings. A trade/current account surplus represents excess savings within a country that are essentially exported, often in the form of loans to trade deficit countries or purchase of existing assets of trade deficit countries. Various policy changes could be implemented to help direct the excess production/export earnings for internal use to benefit the people of each surplus country; however, there are typically powerful economic and political actors that resist the needed policy changes and associated rebalancing. Rather than implement policies to increase internal demand, surplus countries may implement policies to attempt to force the excess production and savings into other countries. One of many ways to do this is to depress the exchange rate. Loose monetary policy is one way to attempt to depress a countries exchange rate. This is used by both trade deficit and surplus countries. Similarly, loose monetary policy may be used by trade deficit countries to attempt to increase demand in order to help make up for the demand reduction that results from the excess of imports over exports.
  Under a balanced trade framework exporting countries (with limited exceptions such as oil exporters) would be expected to spend their export earnings or face trade sanctions. Said another way, in order to retain relatively free access to their export markets they would be required to reduce their current account surplus to near zero as a long term average. With this approach the incentives for competitive devaluations and other trade distorting practices to promote exports would be dramatically reduced. Similarly, the need for protective interest rate cuts to limit increases in exchange rates would be reduced. Because of the increased pressure to rebalance (and cost of failure to do so), it is reasonable to expect that governments of the surplus countries will have greater success overcoming resistance to rebalancing from powerful economic and political actors that resist the needed policy changes and associated rebalancing.
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Gary Stegen Feb 11, 2016

There is a worldwide problem of excess savings. The persistent surplus countries enhance the problem by forcing their excess savings into other countries. This tends to increase the buildup of financial imbalances and instabilities as it also depresses the economies of the trade deficit countries. The central banks did not cause the excess savings problem, they are simply reacting to it with the only tools they have available. The low and negative rates can be seen as an attempt to force savers to spend their excess earnings by making it painful (unprofitable) to hold savings in the form of currency based financial credits. Low rates have multiple effects on the economy, and as the author notes, in some circumstances lower interest rates can lead to higher savings. The world should be actively implementing other methods for dealing with the excess savings issue. A good place to start would be to overlay a balanced trade framework on the “free trade” rules, i.e. restrict large persistent current account surpluses. If the successful exporting countries know they are expected to spend their export earnings or face trade sanctions, they will be forced to deal with their own excess savings. If they do not have the option of forcing their excess savings into other countries they are more likely to find ways to deal with them internally.
- Steve Hurst Feb 12, 2016
  
  @Jose
  
  I have to come back at you on this one Jose
  1/ Yes money is being parked ie no investment. Its got nothing to do with risk and everything to do with lack of profit. Nobody is bothered about risk they are bothered about profit. That simple fact should tell you a lot
  2/ What inflation? There is none and they have been trying to get some via QE for years now. At present they are trying to avoid deflation which is a completely different headache
  
  '...the general rule – which forms the basis of modern monetary policymaking – that a lower interest rate tends to stimulate consumption and other expenditure.'
  
  Really? Can't say I had noticed. I would say all this EU QE is a fudge because France and Italy and Spain to name 3, are badly overdue to reform labour law and nothing much will happen until they do. The longer Draghi mans the pumps to try and keep the good ship 'EUtopia' afloat the longer they will procrastinate. Yellen at the US FED who was so confidently posting graphs and advising of an interest rate rise schedule is now suddenly talking about assessing the case for negative rates
  
  QE is not a diet, its a fudge
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- Jose araujo Feb 12, 2016
  
  Debt isn't coming from trade in-balances, that's just garbage. Debt is growing because there are no investments and its flowing to low risk assets.
  
  When interest rates pick up, countries can start buying the bonds they issued... Remember that we are easing to create inflation and increase interest rates, its not because countries are financing deficits.
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dan baur Feb 10, 2016

Good analysis. As the chart shows, the producer/creditor is not the same [net] person as the consumer/debtor. In time, large imbalances form, but clearly they cannot go on forever. So what's the solution? Either periodic debt jubilees if creditors agree (they do not), or economic tensions that stop this cycle (our current situation). These tensions force debtors to change (Greece, Argentina, etc.) and producers to slow down (China, Germany). Wars have also been used in the past to re-start the cycle, but hopefully not this time. Overall growth doesn't clear these imbalances. I say: continue adjusting even if slow and painful - it can be a lot worse otherwise.
- Jose araujo Feb 12, 2016
  
  But are there such large inbalances?
  
  In a period of general monetary easing , coupled with risk aversion and low interest rates, the growth of debt is normal. Money has to flow somewhere and its flowing to Bonds and sovereign debt.
  
  This isn't operating debt, debt that comes from inbalances, this is debt that comes through the monetary policies.
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- dan baur Feb 10, 2016
  
  Slow adjustments will also result in higher quality growth: the world just doesn't need one more ton of steel, but it could use better robots for instance.
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Steve Hurst Feb 10, 2016

Okay Jose

Here is the USA, God Bless America

Entered reccession and took approx 8 years to crawl back up to the baseline, never such a slow recovery profile

Thing is the US debt has roared away in the meantime. so is the US in worse or better shape and does its debt holding matter. Does its debt holding influence economic policy. Clearly debt does so the fact it is balanced somewhere is irrelevent

Anyway there is a fundamental problem in modern technological consumer society, which incidentally is what China is trying to emulate. That is very simply only 21% of activity is needed to supply the basic survival needs leaving anything between 0% and 79% as overcapacity. Chances are overcapacity is more than 0%, chances are whatever it is technology will make it larger (AI). As soon as you have the bulk of the economys activity as non-essential you have to face big risks. As does any other country wanting to supply that economy. You can very easily get a 7% drop when consumers just stop buying non essential items. The problem the USA (and others) has now got is it has changed consumer behaviour in the milleninnial group, low levels house purchasing, low levels of automobile purchasing, opting for serices that cut labour out

The issue is in a consumer society that consumer/employment has changed reducing consumption in a critical demographic. Thats why there is a growth issue. Thats why there is a debt issue. You get investment when there is profit potential covering the risk. Believe me you dont take risks without some prospect of profit, you may as well just sail a yacht

You only shake the debt issue with growth/inflation. They keep trying to feed inflation with ZIRP and QE and its not happening. Particularly in the EU it shrieks of the need for labour reform but that is not a Central Bank mandate

You have to ask why a region with an aging demographic that claims it needs young blood to fuel its tax revenues also can have youth unemployment in the region of 50% in some locations yet not admit it has serious structual issues
- Steve Hurst Feb 10, 2016
  
  Thank you Jose
  
  Saludos - or however I should say it
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- Jose araujo Feb 10, 2016
  
  Steve...
  
  The problem isn't debt. The most developed countries are the ones that hold more debt. Its also normal in times of recession and risk aversion for debt to rise.
  
  Debt has always a counterpart - More debt more assets... More Debt more deposits in the current conditions. in the end its all artificial.
  
  There is no such thing has debt overhang... why? Because if you have debtors you also have creditors, so it its a burden for some its a relieve for others...
  
  We can go Marxist and find a link between debt and distribution and equality... I would probably agree with this view, but the mechanisms are in place to adjust, just facilitate bankruptcies, and the debt problem is solved.
  
  There is a deep rooted prejudice against Debt in our societies, even if in the end Debt and Equity or Debt and Deposits are all the same....
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Jose araujo Feb 10, 2016

We can talk about the non-recognition of losses. Loans that were made but losses that still haven't been accounted, but this situation can occur both if you finance through debt or equity.

Still in this case the problem isn't debt, the problem is the accounting and regulation system, which IMHO is one of the main responsible for the confidence crisis we are experiencing.
- Jose araujo Feb 10, 2016
  
  I also beg to disagree with you Steve on the confidence side.
  
  We have a trust problem in our institutions. That's how it all started with the sub-prime. That's what you mean when you say Debt is a problem, because the problem lies in the non-recognized imparities and bad debt that our companies, specially banks are carrying.
  
  We open the papers and all we see is cases of miss managed corporations, bank failures, etc , that makes the holders of capital prefer to hold money or buy securities.
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- Jose araujo Feb 10, 2016
  
  Debt is a symptom of a problem, not the problem itself, that's what I've been saying.
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- Steve Hurst Feb 10, 2016
  
  Yes it is quite incongruous how nobody thinks debt is a problem until it is manifestly a problem
  
  The confidence crisis is driven by a lack of profit potential not accounting. You have to ask why risk is not being purchased. Jose have you ever bought risk
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Jose araujo Feb 10, 2016

Steve, sorry for the bad English, but this site does't allow you to correct your posts. Hope you understand me.

The rule of thumb is that who ever starts to talk about debt, doesn't know what he is talking about.

Debt is a symptom, a sign. A sign of trade unbalances (trade comes first, then comes the way how you finance and pay, or not, the trades), and a sign of excess savings - which IMHO is what we are experiencing.

High risk aversion -> preference for liquidity -> savings -> Debt.

Has a hole, if you consolidate Debt with Reserves, you are going to see that most of it will disappear.
- Jose araujo Feb 10, 2016
  
  @Steve
  
  I have an academic foundation in Economics, and believe me, no"major" economic model factors debt. Keynes didn't consider it, simple demand and supply or any neo-classic model factors it.
  
  It never prevented economists to use debt has an explanation for what they don't understand (Hayek, Hicks, etc), but believe me they never introduced Debt into their models of economy.
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- Steve Hurst Feb 10, 2016
  
  Hi Jose
  
  : )
  
  You make me smile Jose
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Jose araujo Feb 10, 2016

Steve, even in a micro/firm level, debt is only different because of the difference between share holders and debt holders, in terms of assets and value creation they are the same, they just held different rights and obligations.

In a normal economy most of the ones that save aren't the ones that invest, hence debt, which is only a mechanism of transmission.

Debt losses and equity losses are the same, for an economy, in the later share holders lose the money, but with debt, banks and its clients lose the money in the end,which is the same.

More, there is no reasons to presume that debt markets are less efficient then equity markets, quite the opposite in a normal economy.

There are no models that factor debt because of the simple fact that it doesn't matter how you finance your assets (remember Mogdiliani and Miller)
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Jose araujo Feb 10, 2016

I think Daniel never really understood that interest rates are low now because of Central Banks,but despite them. Recent hike on interest rates in the Us proved it, because yields remain flat and interest rates at the ZLB.

Does Daniel have any model where he factors debts, or is he just shooting from the hip? Many countries are debtors and aren't growing, so what gives?

For sure countries that were growing due to external demand are more likely to be experiencing low growth, but that's just common sense, it has nothing to do with debt.
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Steve Hurst Feb 9, 2016

One can only look in wonder at the Eurozone and be struck how many citizens have been recruited into a machine that feeds only a small proportion

'...at the international level, leverage is continuing to grow'
Yes, thats the problem
- Steve Hurst Feb 10, 2016
  
  @ Jose
  
  Thank you Jose
  
  Debt is different to equity. I dont recall anybody worrying about equity or defaulting on equity or going bust for having equity
  
  You mention risk aversion, the reality is insufficient profit opportunity for the risk. That should be a big flag
  
  Just to be clear. Debt for the person or party taking it on is income stripped from the future. If you get to the future which happens eventually and the debt has given you no real gain in your position then you are poorer if you still have the debt
  
  If global debt keeps growing and 'growth' is 'meagre' it indicates a systematic problem
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- Jose araujo Feb 10, 2016
  
  You are just confusing symptom with cause.
  
  Symptom is low interest rates, the cause is the risk aversion.
  
  Debt is just a finance mechanism, it's not different from equity and it shouldn't matter by itself.
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Luke Ho-Hyung Lee Feb 9, 2016

There have been many kinds of factors that changed the economic environment in the Modern Information Age. However, very strangely, no economist has ever considered the changed supply chain environment in his/her ruminations about the economy. The supply chain process is just like a human blood vain in the market, and it has suffered from something like a human arteriosclerosis.

In this situation, no matter how powerful and aggressive the adopted economic policies were, they could not be effective. Rather, they would cause greater ill effects including liquidity trap.

I would urge you to find out what the Inter-Supply-Chain-Net (ISCN) is. I believe it could be a powerful solution for the current worldwide economic problems.
- Simon Dépraz Feb 10, 2016
  
  You wrote this article?
  http://www.huffingtonpost.com/hohyung-/a-new-intersupplychainnet_b_6206224.html
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