President Trump suggests Negative interest rates to help economy. Its a useful suggestion that should stimulate a debate

Once again President Trump has made a useful suggestion to stimulate growth in the economy with which the chairman of the Federal Reserve disagrees. The chairman Jerome Powell has suggested that the Fed for the time being is not considering this option. But its quite possible that if excessive reluctance or the necessary closure of retail business and its  impact on spending  and cash hoarding continues this policy option will be debated. It is useful to discuss the pro and cons of such a policy now. Currently Denmark (-0.75), Switzerland(-0.75), Sweden( -0.25)and Japan (-0.10) have negative interest rates . The ECB has used them in the past.The more transparent Fed policy making is, the better ,because it permits a wider range of debate and discussion. Negative interest rates have been used before and proved to be quite workable although there is no consensus about how effective they were in reversing excessive disinflation and deflationary tendencies. Essentially they are meant to encourage investment and spending rather than hoarding cash. They involve charging a small fee for holding money as unspent savings. As such there is an inevitable clash between those who believe in thrift and those who believe the key to recovery is spending and investment.Critics of the policy suggest that they might have perverse effects on cash hoarding outside of the banks.


About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
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