Tuesday, January 20, 2009

Goldman Sachs: Interest Rates Way Too High, Should be Negative 6%

From BusinessWeek:

Interest rates still aren't low enough to stimulate the U.S. economy. Washington needs to engender more inflation so "real" rates turn substantially negative

Can an interest rate of zero be too high? Unfortunately, yes. A new analysis by Goldman Sachs (GS) concludes that the Federal Reserve's cut in the federal funds rate to a record low of zero to 0.25% on Dec. 16 isn't going to be nearly enough to get the economy going again. The report says the Fed would need to reduce the federal funds rate to negative 6% by the end of 2010 to supply the needed amount of monetary stimulus.

The problem: It's literally impossible to cut interest rates below zero. As a result, "we are entering a world with interest rates that are far too high for the economy's good," Goldman Chief U.S. Economist Jan Hatzius wrote in a Jan. 16 research note....MORE

HT: Mises Economics Blog whose commenters said:

They're suggesting that people be paid to go into debt? Wow, I need to start drinking again. Reality is just too weird.


So which president will be on the upcoming 1 trillion dollar bill?