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Re: <nettime> Keynesianism is IN
Alex Foti on Tue, 11 Nov 2008 15:39:06 +0100 (CET)


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Re: <nettime> Keynesianism is IN


Hi Brian (always consistent!) and Stefan (it's neoclassical economists
that got us in this mess, not the postkeynesians),

on rentiers' euthanasia you might be interested in planet ZIRP
(zero-interest rate policy), ciao, lx

Zero hour

Published: November 8 2008 02:00 | Last updated: November 8 2008 02:00

On the edge of the known financial universe lies the planet Zirp,
where money appears to be free. Zirpeans explain that this is because
of their zero interest rate policy. As interest rates come crashing
down on Earth, many wonder if it is becoming Zirpean too. Some say it
has already happened. Although official US interest rates are 1 per
cent, overnight borrowing costs a mere 0.3 per cent, almost zero.

Parts of Earth have gone Zirpean before, in Japan, from February 1999
until the middle of 2006. The period was a scourge. The economy was so
weak that deflation reigned. Nervous banks, companies and households -
quite rationally - clung to cash rather than spend or lend it.
Deflation meant that it was worth more every day. The same,
unfortunately, was true of debts. As a result, everyone scrambled to
pay-off their mortgages, credit card balances and the like. Credit
demand collapsed. Not even zero interest rates could get the economy
moving. Simply, nobody wanted to borrow.

Today, most people quite naturally want to avoid a repeat of this
scary state of affairs. Yet Zirp, in itself, is nothing to be afraid
of. What is scary is the deflation that usually prompts it. For one
thing, falling prices meant that Japan's zero interest rates were
actually positive in "real" terms. Rates appeared to be zero only
because of what economists call "money illusion". Money, in fact, was
not free. And rates could not be cut beyond zero to make it so. That
was the problem.

That is why central bankers have cut rates so fast this past month.
They want to pre-empt the need to go to Zirp by flooding the world
with cheap money. Because there is still inflation, US and UK rates
are now negative in real terms - by 3 per cent and 1.5 per cent
respectively - while eurozone and Japanese rates are positive by only
a whisker.

So is the global economy headed towards a world of zero interest
rates? The answer, in real terms, is that, it has already arrived
there.

On Tue, Nov 11, 2008 at 12:45 PM, Stefan Heidenreich

<stefan.heidenreich {AT} rz.hu-berlin.de> wrote:
> Hi Brian et all
>
> i skip as much as possible all the questions - gold, keynes,-ism - where
> keynes-specialists might help us further off-list and where your points
> in fact seem mostly more precise. In order to come straight to the more
> interesting points at the end.
 <...>


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