Liberty Street Economics

« | Main | »

March 22, 2017
Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

The effects of higher taxation at all levels, along with increased health insurance deductibles and premiums should be looked into as further additional factors limiting spending and therefore preventing full normalization of interest rates.

Low interest rates are a blunt instrument. They may help support an increase in capital spending temporarily, but will likely cause problems elsewhere – for example, bubbles in the stock market and real estate assets to name two. I believe that low interest rates have contributed to the amplified boom-and-bust cycles in the domestic oil & gas market. At best, extremely low interest rates are a temporary solution that will cause problems in other sectors of the economy if the underlying (structural) causes of weak capital spending are not identified and addressed. Without a determined comprehensive approach to address the structural problems of weak capital spending – some of which you have identified in your article – a policy of extremely low interest rates is bound to postpone the inevitable economic downturn and probably make it worse than it otherwise might have been.

Let’s assume for a moment that, because of the increased demand for deposit alternatives created by the savings glut, pre-crisis investment spending in the US was both higher and tilted toward those investments which can be used to create deposit alternatives with the shortest collateral chains – primarily real estate, particularly residential real estate. The implication is that decreased residential spending SHOULD account for more of the drop (50%) than it’s pre-crisis percentage of investment outlays (25%). It also implies that over time we should see most of the investment slack taken up by non-residential investment.

Amazing that you could write this entire article without including a long-term chart of soaring household debt to GDP. This demonstrates everything wrong with central bank thinking and lack of common sense.

The comments to this entry are closed.

About the Blog

Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.

The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s Research Group.

Liberty Street Economics does not publish new posts during the blackout periods surrounding Federal Open Market Committee meetings.

The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.

Economic Research Tracker

Liberty Street Economics is now available on the iPhone® and iPad® and can be customized by economic research topic or economist.

Comment Guidelines

We encourage your comments and queries on our posts and will publish them (below the post) subject to the following guidelines:

Please be brief: Comments are limited to 1500 characters.

Please be quick: Comments submitted after COB on Friday will not be published until Monday morning.

Please be aware: Comments submitted shortly before or during the FOMC blackout may not be published until after the blackout.

Please be on-topic and patient: Comments are moderated and will not appear until they have been reviewed to ensure that they are substantive and clearly related to the topic of the post. We reserve the right not to post any comment, and will not post comments that are abusive, harassing, obscene, or commercial in nature. No notice will be given regarding whether a submission will or will not be posted.‎

Send Us Feedback

Disclosure Policy

The LSE editors ask authors submitting a post to the blog to confirm that they have no conflicts of interest as defined by the American Economic Association in its Disclosure Policy. If an author has sources of financial support or other interests that could be perceived as influencing the research presented in the post, we disclose that fact in a statement prepared by the author and appended to the author information at the end of the post. If the author has no such interests to disclose, no statement is provided. Note, however, that we do indicate in all cases if a data vendor or other party has a right to review a post.

Archives