"Imagine a bank that pays negative interest. Depositors are actually charged to keep their money in an account. Crazy as it sounds, several of Europe’s central banks have cut key interest rates below zero."
The problem is that low interest rates are NOT having the stimulative impact we need. Demand for capital is not triggering lending and consumers seem are uncharacteristically withdrawn. Corporations are holding their cash, acquiring their competitors, buying back their stock, and only becoming more efficient with technology and improved business processes. None of this behavior is promoting the spending and demand that the world's economy needs to counter deflation.
More money has been printed over the last 5 years than all of history. All in a futile attempt to increase inflation and stimulate demand. But it's not good enough. Fears of a rise in anti-competitive behaviors (tariffs, currency manipulation, governments using laws to hurt multinationals, etc.), political upheaval over reforms, and nationalism/imperialism are present, all because monetary policy is not having the desired effects. What's the answer?
Some believe it's time for the USA to raise rates. That's makes no sense with our dollar already rising more rapidly than ever and tons of corporations warning about exchange rate headwinds damaging earnings. Besides, since when do you fight Deflation by raising rates?!
By the same token, super low and negative interest rates are distorting investor and saver behaviors who are forced to chase yields from more risky investments. The potential for very negative consequences can not be underestimated. We need a better way. And we have it.
A better way was presented by British economist John Maynard Keynes wrote about in his book, The General Theory of Employment, Interest, and Money published in 1936 during the Great Depression, in contrast to his a previous works on aggregate supply-focused 'classical' economics. Unfortunately, back then, Keynesian stimulus came in the form of WWII.
A massive military expansion has its appeal for some. And given the threats around the world, we are already seeing it in countries like China, Russia, India, Saudia Arabia, and other areas. Fortunately, thanks to the "Sequester" that went into place here in the USA as a result of unresolved national debt ceiling negotiations, the USA is not going down the same military build up path. Surely the hungry arms industry, congressional hawks, and warmongers would if they could.
What we need is some Keynesian stimulus in the form of infrastructure spending. Heaven knows we have enough need for it! Time has come for a new approach to monetary stimulus. Let's stop paying banks interest on reserves and start investing in the USA!
