Is he right?
The Fed Agrees.
Are on the way. . . .
Look for this to spread.
For now the negative interest rate of -0.1% will only apply to bank reserves held at the central bank. The stated objective is to persuade the banks to reduce their reserves by lending more.
The Federal Reserve today announced that it is bringing in a former state insurance commissioner, Thomas R. Sullivan, to strengthen and head its insurance regulatory office. This is a good idea. Most insurance regulation is at the state level, but the Fed has a huge impact on insurance, especially through its interest rate setting.
I remember when Bernanke said he was going to keep rates at 0 until 2014 and everyone was up in arms. Now he’s telling us that we had better get used to lower than natural interest rates and all the distortion it creates in the economy for the next 30 years or so.
Malinvestment is a very important concept to understand. It simply means the allocation of capital in ways which appear to be (and may be) rational in a period of artificially cheap credit, but in ways which in the end prove to be inefficient once the market corrects for artificially low rates. (Created by a central bank.) Malinvestment is a symptom and a driver of economic bubbles.