Daniel Thorton at the St. Louis Fed has an important note out on the effect of zero interest rates.
In short, he argues that the Fed's policy is lowering consumption because it drains interest income out of the economy.CNBC NetNet
Memo from St. Louis: Fed Policy Is Slowing the Economy
John Carney | Senior Editor
What makes this [Thorton's note] really interesting is the implication that raising rates could actually be a stimulative catalyst. Interest income would increase, providing consumers with more money to spend.What Warren Mosler has been saying for some time.
3 comments:
The propensity to spend interest income is rather low. There is probably nothing the government could spend money on that would be less cost-effective-- on Mark Zandi's bang for the buck chart it'd probably rank lower than even dividends/capital gains tax cuts that provide a mere $0.37 in stimulus for every $1.00 in lost revenue.
http://www.econbrowser.com/archives/2008/10/zandi.gif
"The propensity to spend interest income is rather low."
Quoted for truth.
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