Topic: negative interest rates vs. The Crudele Plan. I know, I’m excited, too.
Eight years of bad-to-mediocre economic growth have certainly been interesting. The new normal has become an unimpressive 2 percent annual expansion at best.
Federal Reserve head Janet Yellen calls this steady growth even though, in congressional testimony Wednesday, she seemed a little less sure. I say it’s about as steady as the Knicks — steadily unimpressive.
The stock market is moaning again, and the economy is groaning. And you will soon start hearing more about something called “negative interest rates.” This is the latest economic fad that’s all the rage in desperate places like Japan, where the economy has been weak for decades, and in Europe, whose crisis is newer but no less dire.
And since the Fed reportedly chimed in about negative rates the other day and Congress asked Yellen about the idea on Wednesday, I think that’s my cue to speak up.
The idea of negative interest rates is simple: If someone wants to keep money in a savings account at the bank, that person will have to pay for that privilege rather than get paid an interest rate by the bank.
Since the economy isn’t growing enough, governments and their central bankers want people to spend rather than save.
I know, you’ve been hearing all your life that you needed to save more — for retirement, for your kids’ educations, for the car you’d like to drive, for that dream vacation, for electrolysis.
Well, forget all that. Some people who are justifiably worried about the economy now think consumers aren’t spending enough. So the advocates of negative interest rates want to prod people to go shopping by making savings less attractive.
Good luck with that. It hasn’t worked in Japan and isn’t working in Europe. And if anyone dares to seriously bring up the idea of negative rates in the US, we’ll have a revolt that will top anything Donald Trump or Bernie Sanders can incite.
But the idea behind negative interest rates is valid. As I’ve been saying for years, the US is in a very big bind because the two tools that modern economies rely on — monetary and fiscal policy — are both out of gas.
Fiscal policy is the government’s ability to spend. And despite the ridiculously large $4.1 trillion federal budget that President Obama proposed the other day, Washington is broker than broke and can’t increase spending to spur the economy without putting future generations of Americans further in the hole.
Monetary policy comes from the Federal Reserve. It’s the ability to raise and lower interest rates — making borrowing more expensive or cheaper — in order to add liquidity to the financial system and goose economic growth.
The Fed has nothing else. It tried an experimental policy, called quantitative easing, to keep interest rates ultra-low. And while that may have worked short term when politicians were crying that the financial system was about to collapse, it did little to normalize the economy.
Instead, the easy-money policy did manage to blow the stock market into a bubble, which now seems to be bursting. Trump brings this up all the time. And QE also managed to make the very rich in this country even richer. That’s Sanders’ standard stump speech.
So, if near zero rates under QE caused so much trouble, how are negative rates going to help?
I’ve been pushing my own economic plan with absolutely no success since well before the Great Recession. The way I see it, when America gets desperate enough, someone will listen.
The Crudele Plan is simple: Since monetary and fiscal policies are kaput, there needs to be a new way to stimulate businesses. Consumers can provide that lift, but you can’t blackmail them into doing so with negative interest rates.
Instead, they need to be allowed — voluntarily — to tap into some of the $15 trillion worth of retirement savings that has been accumulating for decades.
Up until now, the use of money in individual retirement accounts, Keoghs, 401(k) plans and other such vehicles has been greatly restricted. Stocks and bonds are basically the only two investments allowed in retirement plans, and Wall Street, which manages these accounts and happens to sell stocks and bonds, likes it that way.
My suggestion: Create strict guidelines that will allow qualifying people to remove part of their retirement savings to invest — at a minimum — in real estate.
Withdrawals should be taxed, but penalties should be waived. And make the ordinary tax rate attractive.
We all know that real estate has a multiplier effect. Someone who buys a house also purchases a lot of other things, and the benefits trickle down into the economy. And if you don’t believe that, come and look at all the boxes my house-buying daughter has had delivered.
But nothing is perfect. So I admit that there is a problem with my plan. Right now, the stock market is shaky. And allowing people to shift money like I’m proposing could induce more stock selling and lead to more Wall Street stress.
My plan, admittedly, will work better when the stock market is rising. Still, the biggest problem for stocks today is the weak economy. And if my plan works, that problem will be fixed.