negative interests rate – winter is coming

If you have been following the economic news, you might have heard about Larry Summers speech at the IWF. He essentially says that to reach full employment we need a negative interest rate. Yes, you read that right. People hoarding money on bank accounts should be punished for saving. His argument makes a lot of sense. We have been living in a bubble economy and the bubbles have been providing us with the capital for growth. If those bubbles are gone, we must replace that capital influx and to accomplish this we need all the savings to be released. Makes sense?

The keyword is secular stagnation because the natural rate of interest equals the rate of population growth (Samuelson consumption-loan model). If this is true we are entering into a very, very long period of economic stagnation. What is the population growth of your country?

Paul Krugman supports Larry Summers view here.

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