Morning Must-Read: Financial Times: Markets Prophesy Secular Stagnation
A view diametrically opposed to the Federal Reserve’s view as set out by William Dudley. While Dudley wants to take current very-low rates as a sign that Ms. Market doesn’t understand the world and that the Fed should raise rates sooner and faster than it was planning to, the FT does not–it thinks that the market accurately perceives the Federal Reserve as, once again, failing to understand the gravity of the situation…
Note also the next to last sentence I quote. Larry Summers and I have completely won the intellectual argument that as long as interest rates are this low governments should be spending more and taxing less, no? So why have we had no effect on policy?
Markets Prophesy Secular Stagnation:
“This is indeed a downbeat story…
…It is neither healthy nor sustainable for long-term rates to stay this low for this long…. Savers cannot survive on negative real returns. Pension funds are already struggling…. Although finance ministries sell bonds more easily in such an environment, they should not look to prolong it. Their policies should aim at restoring growth to levels that would lead to a higher level of interest rates…. he first recourse is for central banks to show fewer qualms in pursuit of higher inflation. But a useful next step would be for governments to take advantage of these cheap rates to borrow and invest…. It is hard to imagine a future finance minister wishing he had borrowed less when the price was negative.”