2009 04 12

unprecedented fatigue by high-interest-rate borrowers (UFHIRB)

Too simple?  Here is a poorly-written but science-based elaboration of "debt repudiation".

Sucessful Bank lobbyists have procured governmental sanction of criminal usury -- unprecedented high interest rates -- born by exactly the Americans who can least bear the loss of blood to greedy Bankers, by the Americans otherwise most productive to our economy for jobs and productivity.

The tick has grown too large on the dog pulling the sled.  Look at the straws sucking the workers' blood. (patience required)

 

The Borrower is exhausted by high interest rates!  The pleasure of spending has been thwarted by the pain of high interest rates.

 

This experiment must be terminated!   Obviously it is not sustainable.

  

NIRP Negative Interest Rate Program is the solution.

 

Contrary to Bernanke's 2003 Dec

When aggregate demand is that weak, deflation or very low inflation places a lower limit on the real interest rate that can be engineered by monetary policymakers—in other words, it hinders the ability of a central bank to stimulate growth. That is because the nominal rate of interest cannot go below zero. No one will lend at a negative interest rate; potential creditors will simply choose to hold cash, which pays zero nominal interest.

 

and Krugman's 2009 Jan 26

It’s true that the normal response to recessions is interest-rate cuts from the Fed, not government spending. And that might be the best option right now, if it were available. But it isn’t, because we’re in a situation not seen since the 1930s: the interest rates the Fed controls are already effectively at zero. That’s why we’re [not thinking outside the box!] talking about large-scale fiscal stimulus: it’s what’s left in the policy arsenal now that the Fed has shot its bolt.

 

No one will

necessarily now is

Fed must.

 

Yes, we can!”  

 

If the Fed can throw $350B into Banks with no strings attached, then the Fed can provide a more granular “gifting” to support the method to restart Lending

Borrowers first will pay off hi-interest existing loans (the confounding substance of "Toxic Assets") draining the tick that sucks new investment/production.

 

Freed from such encumbrance, the Spirit of Free Enterprise is unshackled and creative world-building is enabled.  Workers work.  The sled moves forward.

 

Once such activity is established, downward spiral is reversed, the Fed may daily manage interest rate to titrate appropriate balance.

 

Daily titration in thousandths, contrasted with quarterly adjustments in 25 hundredths, all the while avoiding large, discontinuous adjustments, is like establishing the optimum rate of a large ocean vessel to which course capitalism will adapt.

 

The experiment over, Consumers must never again be exposed to high interest rates, which idiotically have been used as punishment against irregular payback, a positive feed-back loop destined to UFHIRB.  More intelligent control of credit usage is to suspend access to credit funds until sufficient paydown occurs.