Do Lower Interest Rates Promote Deflation?

Gorilla-Thinking

QUESTION: Mr. Armstrong; You have said that the only way to reverse the deflation is to raise interest rates not lower them. I understand that the low rates only reduce the cost of funds for banks, but it hallows-out savings and pensions. Has anyone listened to you and tried the opposite trend to raise interest rates? It seems the Fed is listening to you but the IMF and others plead to the Fed not to raise rates. Can you point to any hope in this regard?

Thank you for what you do. Truly you make us think.

KS

ANSWER: Actually, all you have to do is look at Iceland. Not only did they throw the bankers in prison instead of giving them bonuses, but they also raised interest rates unlike everyone else in the Western world. In an attempt to stimulate their economies, Western central banks lowered rates and the European Central Bank (ECB) moved to negative rates after implementing a very unconventional monetary policy suggested by Larry Summers. Meanwhile, the Central Bank of Iceland (CBI) did precisely the opposite by raising interest rates and reducing the size of its balance sheet. This stands in direct contrast to the ECB, the Bank of England (BOE), Japan, and the United States.

Just step back and look objectively at the evidence. Back in July 2011, the CBI’s benchmark rate of 4.25% was significantly higher than the ECB’s benchmark rate of 1.50%, and it was substantially higher than the BOE’s benchmark rate of 0.50%. Since that point in time, the CBI’s benchmark rate increased relative to both the ECB and BOE.

Iceland now has the strongest economy in all of Europe where its GDP has risen more than 100%, doubling since 2009. This stands in amazing contrast to the ECB where European growth since 2009 has been just 14%, and in Britain, the total GDP growth since 2009 has been 27%. This is clear evidence that this policy of low interest rates is nonsense. The rate of interest reflects inflation and future opportunities. If rates are at zero, it demonstrates that there is zero confidence in the future of Europe. I think even an ape could figure out that this is not working.

Latest Posts

Harris to Raise Corporate Income Tax

America is experiencing a 13-year high in corporate bankruptcies, with more companies going under than during the lockdown era of the pandemic. Companies are rushing to friendshoring opportunities to avoid [...]
Read more

Hungary Being Pushed out of the EU?

https://www.armstrongeconomics.com/wp-content/uploads/2023/11/Orban-on-Ukraine.mp4 The European Union has revoked Hungary of its right to host the next summit. The EU supposedly has a rotating presidency of council to maintain the appearance that each [...]
Read more

Who Really Controls Your Access to Politicians? The SWAMP!

https://www.armstrongeconomics.com/wp-content/uploads/2024/07/Paulina-on-Secret-Service.mp4   QUESTION: Marty, I watched Rep. Anna Paulina Luna interrogating the questionable Secret Service Director Cheatle. Paulina accused her of perjury. She says that Garland probably told her to [...]
Read more

Market Talk – July 23, 2024

ASIA:   The major Asian stock markets had a mixed day today: NIKKEI 225 decreased 4.61 points or -0.01% to 39,594.39 Shanghai decreased 48.85 points or -1.65% to 2,915.37 Hang [...]
Read more