Tuesday, August 16, 2016

What Do We Learn From Low Intrest Rates In Europe?

The ECB has done what it can to stimulate the economy.  Interest rates are at an all time low and neither consumers or businesses have increased spending or investments in response to low borrowing costs.  There is not much more that the ECB can do with monetary policy to increase economic growth.  Germany and France could borrow sell 30 year bonds at interest rates below 1% but that has not happened.  Apparently, governments do not believe that investments in infrastructure could produce a return greater than 1%.  Fiscal policy is the only government tool remaining but Germany and France are not able to use fiscal policy to stimulate growth.  They are prevented from increasing budget deficits even when the cost of additional debt service is almost zero.

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