Are the zombies instead of, or in addition to, the humanoids?
From Bloomberg Opinion via SiliconValley.com, October 16:
Japan offers American and European policymakers a cautionary tale of what's in store if they keep suppressing interest rates
Over the next decade, the U.S. economy will face two big challenges: higher interest rates and AI-generated disruption. Each invites the same solution: policies to keep rates below their market level.
The strategy, also known as yield-curve control, is tempting, and it may even provide an immediate boost to the economy. But messing with rates would be a mistake. Japan’s experience shows that the long-term costs of keeping rates artificially low far outweigh the short-term benefits.
It’s easy to see the hardship caused by higher interest rates. In the U.S., rates on long-term bonds (ones that mature in 10 years or more) have trended up since the pandemic. This means consumers pay more for their debt and mortgages. Businesses pay more for loans. The government pays more to service its debt. A lot of the U.S. economy is built around the historically low rates of the last several decades, so the longer rates stay high, the more disruption it will cause.
AI poses another challenge. Even in the best-case scenario — artificial intelligence transforms the economy, making Americans richer and more productive — AI will involve lots of disruption. Higher interest rates will mean that firms which are barely hanging on will face a higher cost of capital to keep their businesses viable and their people employed.
So the government will want to do whatever it can to bring down long-term interest rates. Conventional monetary policy tends to influence short-term rates; longer-term rates are set by the markets. And many market forces point to higher rates for longer.
The government can influence long-term rates through policies such as quantitative easing, where the central bank buys long-term bonds. The government can also lower rates by requiring pension funds or banks to buy lots of bonds. But it is a risky plan....
....MUCH MORE
