As long as the US runs a giant trade deficit, we are going to have lower interest rates than we would otherwise
Interest rates—the “price of money”—have been unusually low for most of this century, particularly since the 2008 crisis but going back to Greenspan’s era. The wisest people I know differ on exactly why.
There’s no doubt that near-zero, zero, and below-zero interest rates changed the incentive calculations and decisions from what they were a mere 30 years ago. You can’t look at policies or almost anything else prior to the early 2000s as a standard for today.
The incentives of low interest rates have literally screwed (that’s a technical economic term) things up.
Capital is cheap because the world is awash in it. This is historically extraordinarily unusual. Modern banking and capital markets arose because capital was so scarce. We needed mechanisms to allocate it efficiently.
The post-World War II monetary regime made the US dollar the “global reserve currency.” This has been called the “exorbitant privilege” allowing the US to both borrow and lend in its own currency. But in some ways, it’s also an exorbitant burden.
We (the US economy collectively) can buy imported goods without exporting our capital stock. That is not the case everywhere, and is a top reason our interest rates are so low. Decades of globalization-driven giant trade deficits have had a cumulative effect. Greenspan noted this several times in his career, and Bernanke echoed it. It clearly keeps US interest rates down.
The reality is that as long as the US runs a giant trade deficit, we are going to have lower interest rates than we would otherwise. That’s not anyone’s choice. It is just math, and it won’t change unless we either greatly reduce imports, or modify the US dollar’s status.
Low interest rates have winners and losers. They favor large businesses and wealthy investors but punish the bottom 70–80% of the economy.
Inflation came in white hot Thursday, and it was artificially low because of the way they reflect housing costs. Properly calculated inflation would probably be 10%.
John Mauldin 11 February 2022
https://www.mauldineconomics.com/frontlinethoughts/financialized-everything
Nice chart US 10Y
https://englundmacro.blogspot.com/2022/02/ar-det-nagon-som-vet-hur-exitplanen-ser.html
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