Armstrong Economics Blog/Economics
Re-Posted Sep 8, 2017 by Martin Armstrong
QUESTION: Mr. Armstrong; You said at your Frankfurt the ECB policy of negative interest rates is actually creating a wider gap between the poor and the rich. Could you elaborate on that comment?
Thank you. Hop you come back to Frankfurt. You do realize that you get twice the crowds here than anyone.
ANSWER: Lowering interest rates to negative was really brain-dead. The rich can move their move and export it to the USA. The poor, lack the sophistication and cannot export their labor no less their meager savings. The people who drive the economy have different roles. The rich provide the capital and create jobs. The middle class to poor are the people who form the foundation and it is their consumer spending that create the underlying economic growth. Attacking the rich always reduces investment and jobs, but lowering the interest rates to negative causes the rich to leave and the poor to middle class suffer lacking the sophistication export both their labor and savings.
Draghi tried to be as vague as possible, because he is trapped. He knows this cannot go on forever. He realizes that once he stops, the bond market crash and there is a risk that the Eurozone government are forced to pay real interest rates and that will blow out the entire EU budget system. Draghi does not know what to do. He confirmed that the governing council had begun ‘very preliminary’ talks about how the quantitative easing might be changed; how much longer it might run, and how much it might pump into the euro economy. He actually said:
“We will announce when we are ready. We think we are going to be ready for much of what we have to decide in October … if we are not then we postpone.”
This idea of lowering interest rates envisioned by Larry Summers, demonstrates that he knows absolutely nothing about economics. He has only read books and never rolled up his sleaves and had to work in the real world to be able to see what I am writing about. Why economic professors are ever allowed to play with the economy is beyond me. You would not ask someone to operate on your brain if they have never practiced surgery.