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| I think you have it almost right, John. What I think is missing is the change in psychology of the guy who has $1m changes at zero percent interest. If he is receiving enough interest to provide his family a decent living, he will spend the interest. As soon as the interest fails to cover living expenses, the guy hunkers down and cuts costs as much as he can. I believe it is just human nature for this to happen. There are many farmers in this exact position today, aren't there? What are they doing? Are they spending money as fast as they were when their incomes were high? From what I've heard, they are doing exactly what I am saying should happen. This is why I made the comment that Mises seems to be an academic - in theory, he is right. If the million is not going to be worth more in the future, why not spend it now? In the real world, however, human psychology needs to be taken into consideration.
So, is it possible that zero interest rates could be a force that actually slows spending? Or, at least there is an input to the model that should take this into account? (I would have to think about that one for awhile - my brain doesn't work as fast as it used to - g) | |
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Negative interest rates coming?
