Opinion: Negative interest rates put the global economy on a razor’s edge

Negative rates are now the policy of the European Central Bank, with a deposit rate of minus 0.40%. Ditto for Switzerland, where the rate is minus 0.75%. In Sweden, the rate is minus 0.35%. The Bank of Japan too has announced negative interest rates, of 0.10%.
More than $26 trillion of government bonds now trade at yields of below 1%, with around $7 trillion currently yielding less than 0%. Government bonds in Germany with a maturity of seven years are trading at negative yields, while Swiss and Japanese government bonds out to 10 years trade at negative yields.

Negative yields mean that if an investor places a deposit with a bank, at maturity the investor receives an amount less than the original investment. In effect, the depositor pays to place money with the bank. In the case of bonds, negative yields mean that investors accept an economic loss, as the price paid by the investor is greater than the present value of the interest payments and principal repayment for a security.

Negative real rates entail return on the amount invested but loss of purchasing power because inflation rates are greater than the return. Negative nominal rates involve a guaranteed loss of capital invested.

Yet negative rates so far have not boosted growth or inflation. Instead the policy is creating serious economic and financial distortions.

The lack of impact on the real economy reflects the failure of these policies to materially increase consumption and investment. Heavily indebted or increasingly cautious households are reluctant to borrow to fund spending. Low business investment reflects lack of demand, over-capacity, and a reluctance to increase debt in a potentially deflationary environment.

http://www.marketwatch.com/story/negative-interest-rates-put-the-global-economy-on-a-razors-edge-2016-03-29

The Curious Case Of Lower Oil Prices Leading To Higher Gasoline Prices

This really isn’t quite what we would expect: the global oil price crashes and yet the price of gasoline goes up in some countries. The explanation is that the fall in the crude price has enabled countries that were doing very silly things in an economic sense to stop doing those silly things. And in one case actually forced them to stop being so darn stupid (Venezuela, we’re lookin’ at you Kiddo). The net result of this is intriguing. We would generally think that lower fossil fuel prices will increase consumption and thus make our climate change problems worse. However, that lower oil price has also meant that countries are stopping subsidising the use of fossil fuels, something theInternational Energy Authority has been calling the most important thing we can do about climate change prevention. Whether these two things actually balance is unknown (and it’s unlikely they do) but there is at least a silver lining.

Reuters has been looking at what has happened to gasoline prices around the world:

A dramatic drop in oil prices is translating into a mixed bag for motorists across the globe – from hefty savings at the pump in the United States to a rare fuel price hike in Venezuela.

Oil prices have dropped nearly 70 per cent in the past 20 months, driven down by a glut in supply. All countries have access to the same oil prices on international markets, but retail gasoline prices vary wildly, largely because of the taxes and subsidies imposed on them.

That has meant the impact of diving oil prices has been uneven around the world.

In most of the world yes, obviously, gasoline prices have fallen with the crude oil prices. That’s because most parts of the world have been historically sensible, gasoline costing the market price of oil plus refining plus some tax. The tax because there are externalities to oil use (over and above climate change emissions) and also because demand is relatively inelastic. And we do need tax revenue to run government and getting our revenue from things that have inelastic demand is the way to get those revenues we need.

http://www.forbes.com/sites/timworstall/2016/03/05/the-curious-case-of-lower-oil-prices-leading-to-higher-gasoline-prices/#190cf64a1fa9

Barack Obama: Guns Are Our Shared Responsibility

THE epidemic of gun violence in our country is a crisis. Gun deaths and injuries constitute one of the greatest threats to public health and to the safety of the American people. Every year, more than 30,000 Americans have their lives cut short by guns. Suicides. Domestic violence. Gang shootouts. Accidents. Hundreds of thousands of Americans have lost brothers and sisters, or buried their own children. We’re the only advanced nation on earth that sees this kind of mass violence with this frequency.

A national crisis like this demands a national response. Reducing gun violence will be hard. It’s clear that common-sense gun reform won’t happen during this Congress. It won’t happen during my presidency. Still, there are steps we can take now to save lives. And all of us — at every level of government, in the private sector and as citizens — have to do our part.

America’s Bountiful Churn

Those who would make America great again by building walls are in fact closing America down.

The terrorists and demagogues want us to be scared. We mustn’t give in George Soros

Jihadi terrorist groups such as Islamic State and al-Qaida have discovered the achilles heel of our western societies: the fear of death. Through horrific attacks and macabre videos, the publicists of Isis magnify this fear, leading otherwise sensible people in hitherto open societies to abandon their reason.

Scientists have discovered that emotion is an essential component of human reasoning. That discovery explains why jihadi terrorism poses such a potent threat to our societies: the fear of death leads us and our leaders to think – and then behave – irrationally.

Science merely confirms what experience has long shown: when we are afraid for our lives, emotions take hold of our thoughts and actions, and we find it difficult to make rational judgments. Fear activates an older, more primitive part of the brain than that which formulates and sustains the abstract values and principles of open society.

http://www.theguardian.com/commentisfree/2015/dec/28/terrorists-demagogues-scared-charlie-hebdo

The Deafness Before the Storm

 http://www.nytimes.com/2012/09/11/opinion/the-bush-white-house-was-deaf-to-9-11-warnings.html?_r=1