Submitted by Taps Coogan on the 20th of September 2019 to The Sounding Line.

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Peter Fisher, a Dartmouth Tuck School of Business Senior Fellow, recently spoke with Bloomberg to “call out” the fallacy of negative rates. He calls them the equivalent of an income tax whose real purpose is beggar-thy-neighbor currency devaluation.

 

Some excerpts from Peter Fisher:

“I think it is important that we call out how destructive negative rates are. And I don’t want to sound like a fearmonger, but let’s remember, the Great Depression in the 1930s really happened because of the toxic mix of tariffs and  beggar-thy-neighbor currency devaluations. That’s why the post World War II regime, Bretton Woods, was about a general agreement on tariffs and fixed exchange rates.”

“Negative interest rates are just a screen that central banks are hiding behind to run beggar-thy-neighbor policies. It doesn’t really work. It’s a nice theory that it might stimulate domestic demand (but) it’s not happening. It does not stimulate credit. The Japanese banking system and the European banking system are shriveling up in front of our eyes. It’s lipstick on a pig… That should be called out… It’s terrible.”

“Tariffs wars and beggar-thy-neighbor currency policies drive to the lowest common denominator. They’re not growth oriented. They are both destructive… It’s not working to have negative rates and think people will consume more. Savings rates are going up in Sweden and economists there say “Gee, despite the negative interest rates.” No, because of the negative interest rates. Negative interest rates might be a tax on future consumption. Actually, its an income tax. Actually, people experience it as a tax on their income and therefore, it slows the economy down.”

There is more to the interview, so enjoy it above.

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