| reaper, it is true that those on the "fixed income" side of the equation do get less on their investments when periods of lower interest rates prevail. I think, however that they are compensated, to some extent by lower inflation (if indeed the system the feds are trying to control works). We do need some good economists to tell us what is the multiplier (lent money to deposits). In any event, the important point is that lower interest rates serve as a stimulus by increasing available funds in the system in consumers' hands and for ivestment in corporations coffers. The accepted "wisdom" is that it takes about a six months to percolate through the economy, but the expectations of that percolation often moves markets ahead of time. In some cases (like Japan), such moves have proven futile (pushing on a string), in that this additional injection does not end up as consumption, but as additional savings, for fear of an economic calamity later down the line. Some two years ago, when we had that malaise in Asia, I commented on the Asia thread that to jump start the economy (through increased consumption), in lieu of wasting money on un-needed infrastructure programs, they should have a short period of "tax credits" for consumption, I figured at the time that this could restart their growth engines, but their main problem, was the need to change their xenophobia and liberalize their immigration policies, to change the basic demographic problem they are facing. |
