No one has written about this yet. The Fed effectively dropped its lending rate to zero-percent today, the first time in history. Unfortunately, this seems like a desparate Hail Mary, because adjusting the interest rate is the Fed’s main wrench for the economy, and it can’t go any lower than zero. Sure, it can print more money, but that just leads to inflation and hyperinflation. This immediately brings up the memory of Japan’s “lost decade”, when it dropped its interest rate to zero for years, but the economy still stagnated.

Yup. I’m pretty sure “zero percent” the sound of the liquidity trap clanging shut.

Mortgage rates dropped even further as a result. and both show the 30yr fixed with a 4.875% interest rate/5.091% APR.

Not only is ZIRP a bad portent - it’s also a tremendously fun thing to pronounce out loud!

Hmmm, I wonder if I could refinance…

It’s awesome for us savers. I’m sure ING Direct savings accounts will have AWESOME returns now.

Guess it’s time to be irresponsible and start getting lines of credit I can’t afford!

That is the idea. Please go out and spend like never before.

Anyway, one more time: Big Ben for man of the year. Somehow he did not get it last year, I hope he does this year.

3 month tbills hit -.01 iirc. That’s only the second example I can think of where a gov’t bill (any gov’t) hit a negative return with people willing to buy it.

When was the other time? OH RIGHT, Japan in the 80s.

Yay! I see only good times ahead for the next decade.


Yeah exactly. I dunno why people keep talking about the Great Depression when you can see the example of Japan. A decade of shit growth and twenty years later they still haven’t managed to get back to where they were at prior to their housing bubble in the 80s. Things are gonna suck here for a long ass time.

i got one word that will explain why that won’t happen: ‘demographics’

You think things are going to get better as a greater proportion of the population turns into low consuming non-workers?

The US’s demoraphics are more favorable than those of Japan due to immigration.

AFAIK, the US’s run up in Housing was not as extreme as that in Japan in the 1980’s. Further, the US’s policy response has, so far, been far stronger. These are strong reasons to be hopeful. Now, maybe I am just talking my book since I am long but that is what I think.

Immigration is pro-cyclical, depending on it to fix demographics issues is absurd, especially with current high levels of nativist sentiment. The housing bust is affecting the entire developed world, which seems to be grounds for considering it more severe than that of Japan, although it has, as you note, not caused the same % change in prices. Note that the global nature has the side effect of greatly reducing return on trade and investing more generally.

Global policy responses have been strong, but also quite obviously insufficient.

Furthermore, avg banking crisis generally results in a loss of ~16% of GDP, which we haven’t hit – even though we’re close to the avg 6% GDP gov’t bill for cleanup.

I think there’s more than sufficient reason to believe that there will be a multi-year recovery rather than the standard recession length of 16-18 months. Then again, I also thought that things were coming along nicely during the calm periods after Northern Rock (February) and Bear Sterns (March) collapsed.

I’m expecting the helicopters to be airborne any day now. Just print the debt away! That this will sink every single foreign investor in dollars is just your regular US economy policy.

Good times!

Well, I think the Pittsburgh offense is a bit overrated, to be honest…

Yeah seriously, Roethlisberger is so soooo overrated, it makes me mental. Guy get accolades because he’s strong and can throw hard, but he’s a bonehead. He’s like Brett Favre, actually… but with even more interceptions and fewer yards per game.

Matt Cassell for man of the year.

Given the low rate of interest my bank currently pays on my savings account, does this mean I can expect them to start charging me a monthly fee for providing a “safe” place to store my money? I aslo wonder whether the policy makers have forgotten the stimulus the economy received from folks who in the past relied on the interest on their savings as part of their strategy for making ends meet. More disincentives to save don’t seem to me what we really need.

They’ll just add another zero after the decimal for you…good stuff.

The bulk of the US population is in one of two demographics: The baby boomers, and their kids (“generation Y”).

One of these groups is currently retiring en masse. Result? A last-ditch attempt to make money in the market, followed by huge amounts of money leaving.

The other one is just now starting to get jobs. Most of them won’t even start saving until their mid-to-late 30’s.

So once all the Boomers retire and the Gen Y’s start saving, yeah, the market’s gonna be down. And once the Gen Y’s get in, things’ll go back up again.

In fact I know a lot of so-called Gen Y’s (and all of us Gen X’ers, who are definitely at that “Geez I gotta start saving for retirement” age) are thrilled beyond reason at what the market’s done, because for them there’s no time like the present to get in.