President Trump suggests Negative interest rates to help economy. Its a useful suggestion that should stimulate a debate

May 13 19:05 2020 Print This Article

Once again President Trump has made a useful suggestion to stimulate growth in the economy with which the chairman of the Federal Reserve disagrees. The chairman Jerome Powell has suggested that the Fed for the time being is not considering this option. But its quite possible that if excessive reluctance or the necessary closure of retail business and its  impact on spending  and cash hoarding continues this policy option will be debated. It is useful to discuss the pro and cons of such a policy now. Currently Denmark (-0.75), Switzerland(-0.75), Sweden( -0.25)and Japan (-0.10) have negative interest rates . The ECB has used them in the past.The more transparent Fed policy making is, the better ,because it permits a wider range of debate and discussion. Negative interest rates have been used before and proved to be quite workable although there is no consensus about how effective they were in reversing excessive disinflation and deflationary tendencies. Essentially they are meant to encourage investment and spending rather than hoarding cash. They involve charging a small fee for holding money as unspent savings. As such there is an inevitable clash between those who believe in thrift and those who believe the key to recovery is spending and investment.Critics of the policy suggest that they might have perverse effects on cash hoarding outside of the banks.

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About Article Author

Harold Chorney Economist

Harold Chorney is a Professor of political economy at Concordia university in Montréal, Québec. He worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. He also worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. He's been sought after for consultation by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. His work on public sector deficits was discussed by members of the Government of France under the Presidency of Francois Mitterand.

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