August 8, 2016

They’re coming.

Who, you ask? Aliens? Locusts? Zombies?

No. Far worse. They’ve already taken Japan and Europe.

I’m talking about negative interest rates! And they’re coming for the U.S. from the east and west!

As central banks and monetary policy dominate almost any economic discussion, interest rates dip lower and money becomes easier to obtain.

I’m not always the biggest fan of economic policy, but it is important. However, it shouldn’t occupy center stage – and it has for nearly a decade.

It would be fine if the policy and rationale made sense, but the evidence doesn’t back it up. At 0 percent rates, it didn’t work. At negative rates, it’s not working. 

Next idea? Believe it or not, the next plan is to go further negative with rates and add some aggressive Quantitative Easing! Central bankers seem to be one-trick ponies and they’re good, but the act is tiresome.

Here’s an interesting fact – this “recovery” is the fourth longest one since 1954, but it’s also the weakest of the four.

Since 1950, average GDP growth during a recovery has been 4.3 percent with average overall economic growth around 34 percent. But since the Great Recession, GDP has grown 2.1 percent and overall economic growth is at 16 percent.

Unfortunately, that trend is expected to continue. But it makes sense. After all, how can we expect assets to gain value when monetary policy hinders growth and weak recoveries are partnered with negative interest rates?

The outlook is rather dreary.