I was speaking of consumers, not any particular business sector. The point, as you surely know given your economic expertise, is that very low interest rates could encourage consumers to use debt to fund greater consumption, which, taken too far, could result in inflation.
BTW, lower rates are stimulative regardless of whether consumers actually increase their use of debt. Lower mortgage rates allow consumers to permanently reduce the interest burden of carrying debt on their homes (as well as on any other debts they refinance in the process), putting more money in their pockets each month without increasing the level of their debt.
In any case, anything stimulative to demand COULD lead to inflation, which was the potential problem that YOU raised and to which I was responding. Don't go trying to change the subject.
Now, encouraging businesses to take on debt is also stimulative and is also, in case you didn't get it, THE POINT! The fed wants to encourage business investment, which stimulates demand for labor, capital goods, raw materials, etc. while stimulating supply of services and finished goods. Overstimulation of demand from businesses also MIGHT lead to inflation, which, again, was YOUR issue.
You should also know, zonder, that our fed has a slightly broader mandate that your ECB. While yours is chiefly concerned with stable prices (most often manifesting itself as a focus entirely on preventing inflation), ours is concerned with maximizing sustainable growth while also maintaining stable prices. And stable prices to our fed means avoiding BOTH excessive inflation and deflation, the latter of which is seen by most economists as the greater risk right now. The fed is doing its job.
That cheap debt MIGHT encourage excessive financial risk-taking (over-leveraging of businesses) is not a monetary policy issue per se, and it was our fed's monetary policy YOU were objecting to. So, for this discussion, what else might come out of excessive debt besides overstimulation and inflation is not relevant.
Now, you claimed to have an expert opinion as to how to improve our monetary policy. Well, I'm still waiting.
Oh, and BTW, the problems with telecom were more a result of overinvestment leading to overcapacity, not how they financed that investment. Pricing and margins in the sector would have collapsed even if they had financed it all with equity, which was also cheap and easily available at the time they were funding their overinvestment. Capital structure doesn't cause overcapacity. You should know that, being an economic expert and all. |
