[rbg81]

3) Negative rate of return on savings. Savings accounts, CD’s, and bond interest rates have declined due to Federal Reserve low interest rate policy.

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This especially is being done to keep the cost of the ballooning deficit managable. Without it, revenues would not even be enough to cover interest on the debt. Then massive transfer payments would cease. Since most of the population gets some subsidy or other these daze, all hell would break loose.

The FED will work to keep interest rates low indefinitely for this reason. Old people won’t riot, but young minorities will. This whole scheme is just one big Hail Mary, with out leaders hoping for some kind of economic miracle to grow us out of this unsustainable mess. But it ain’t gonna happen ‘cause there are no saviors left.

[arrogantsob]

Central banks cannot indefinitely peg nominal interest rates (r) since the inflation in the money supply necessary to peg its rate will fuel inflationary expectations (x) which are then worked into the nominal rate (n). n = r+x

In other words, say they pick a r of 2% and that the inflation required to keep it there causes a 2% increase in the expected inflation rate (x). Then rather than have an n of 2% it jumps to 4% (2% r and 2% x). This is the rate people will pay. Plus, of course, whatever the actual inflation rate when this started which was worked into the initial rate.

Low interest rates are part of the standard monetary prescriptions for recession/depression. But we appear to be seeing an example of Keynes’ idea of the Liquidity Trap which makes Monetary Policy powerless especially when risk-takers are not inclined to take risks because of punitive tax policies.

With interest rates this low the correct monetary policy should lock in rates for government debt at the longest possible maturities. Real rates must be extremely low since nominal ones are barely above the rate of inflation.