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Napanee, Ontario | "What zero interest does, again IMHO, is to price things such that there is no ROI for everything. Does this cause a lack of investment - could easily be. Does it cause consumption? Not likely, as it would be even more imperative to people with money to hoard it, since there is nothing attractive to invest in"
key flaw and contradiction in your reasoning here^^^
For things to be "priced such that there is no ROI", it necessarily implies that the price has RISEN. Meaning that people arn't in fact hoarding money, but rather investing, chasing prices and increasing them higher to keep up with inflation in investment class assets. The "return" is the decay avoided in keeping your money in an asset class (cash, 0% bank accounts) that continually buys less of another asset class every year. And there isn't ZERO ROI yet - the ROI of say a treasury at 2% or land @ 3% still beats 0% in a bank account.
People don't want to hoard cash when there is no return for doing it, and the cash buys less capital assets every year. And we know they are not. They are buying bonds stock, art, land anything rather than keeping it in 0% bank accounts, and we can see the evidence of that in the record NOMINAL prices before us. And they will be even less inclined to hoard cash when it starts costing them money. 2% in a bond or 3% in a acre, or 4% in a stock is better than -xx% or 0%.
Yes, Velocity of money has declined - main street is an entirely different animal and loans to main street arn't increasing, and wages are declining - less fixed income to flow around. But for investment level purchases, there is a record amount of liquidity, and its mostly been going one way. INTO investment assets (that arn't measured by inflation stats). Another reason the V of money is declining - There is no regular churn, and volume in these assets. Its more of a one way street. Take land sales for instance. Way more buyers, not enough sellers. Stocks, bonds - all the same. The sale volume drops, so velocity drops.
Edited by OldMcdonald 11/24/2014 13:24
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Negative interest rates coming?
