Have Central Bankers’ got it wrong?

econfix

Below is very good video from the FT – here are the main points:

  • Central Banks – by lowering interest rates they could make savings less attractive and spending more attractive
  • After GFC low interest rate and asset purchases increased lending and avoided a global depression.
  • Now the world economy is not behaving as the central bankers’ said it would
  • Their theory was that with lose credit (lower interest rates) the economy would grow and inflation would rise.
  • Inflation is stagnant (unlike the 1960’s – see graph below) and this is worrying as a little inflation is required to lubricate the economy. It allows prices to fall in real terms.
  • The missing inflation may mean that the bankers’ theories are wrong.
  • Cheap money may have encouraged high asset prices and debt levels but it may undermine the economy without doing much for growth.

Inflation Unemployment.png

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About Jim Rose

Utopia - you are standing in it promotes a classical liberal view of the world and champion the mass flourishing of humanity through capitalism and the rule of law. The origin of the blog is explained in the first blog post at https://utopiayouarestandinginit.wordpress.com/2014/03/12/why-call-my-blog-utopia-you-are-standing-in-it/

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