If interest rates fell, borrowings would still jump.
Sir Martin Wolf writes “When interest rates fell in the early 80’s, borrowing jumped. The chances of igniting a surge in borrowing now are close to zero”, “Japanese lesson for a world of balance-sheet deflation” February 18.
He is wrong the world has not changed that much, if the interest rates fell borrowings would still jump. The problem Wolf has is that he is looking only at the Federal Reserve’s intervention rate which is close to zero and cannot fall much more, and not at the rates that really do matter, for example the interest rates on credit cards. The interest rate on a credit card in the US for someone like me that has a substantial credit line available and has never defaulted on any payment is currently 17%.
With a rate of 17% low inflation expectations, for now at least, and cash being king, I would have to be an absolute nut to borrow even if I most fervently wanted to help stimulate the economy.
He is wrong the world has not changed that much, if the interest rates fell borrowings would still jump. The problem Wolf has is that he is looking only at the Federal Reserve’s intervention rate which is close to zero and cannot fall much more, and not at the rates that really do matter, for example the interest rates on credit cards. The interest rate on a credit card in the US for someone like me that has a substantial credit line available and has never defaulted on any payment is currently 17%.
With a rate of 17% low inflation expectations, for now at least, and cash being king, I would have to be an absolute nut to borrow even if I most fervently wanted to help stimulate the economy.
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