What Happens When Everyone in the World has Zero Interest Rates?

If you can’t remember the definition of stupidity, events this week will refresh your memory. One popular definition of stupidity is repeating the same behaviour but expecting a different result, like pushing on a door that opens by pulling. A more current and topical one would be cutting interest rates 511 times in six years in order to raise growth and/or lower the unemployment rate.

Bloomberg ran the headline last week ‘Central banks keep easing after 511 cuts fail to spur growth’. This was a real article, not one on a satire site. After six years of responding to a credit bubble by lowering the cost of credit, central banks are almost out of rates to cut. This presents an interesting problem which we’ll try to solve over the next five days: what happens when everyone in the world has zero real interest rates?

Source: Bloomberg

Hold your thoughts on global ZIRP (zero interest rate policy). It’s a big week in Australia, at least if you think macro-economic data has an effect on the stock market. March housing finance figures will be released by the Australian Bureau of Statistics today. With no advance knowledge of them, we predict they will show that the Reserve Bank has failed to ignite a new housing boom in Australia.

So what? Well, poor housing figures will provide more justification for another interest rate cut between now and the Federal election in September. You’d go with sooner rather than later on the rate cut. Any rate cut too close to the election looks political. Cutting now looks apolitical.

Besides, the size of the government’s deficit in 2012–2013 should provide even more justification that the Australian economy needs cheaper credit.  Treasurer Wayne Swan is set to announce that the government will return the budget to surplus in 2016–2017, about $40 billion in deficits later.

It’s an impressive achievement. In the last five years, the deficits have been $27 billion, $54.5 billion, $47.5 billion, $43.4, billion, and an estimated $15 billion for 2012–2013. That number will probably be lower tomorrow, in order to show some fake improvement. But the trend is pretty clear. 

There is something vulgar in the amount of press coverage the Australian Federal Budget gets. The mainstream media furiously calculates the net dollar benefits to the average family, the same way you might calculate the net caloric benefits a pig gets when it sidles up to the trough. The handing out of taxpayer money (while running deficits) should be an occasion for public shame.

Dan Denning
for Markets and Money

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Dan Denning

Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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5 Comments on "What Happens When Everyone in the World has Zero Interest Rates?"

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truth and integrity

What happens with world ZIR?
and so Malthusian economics will prevail and the world population probably halved or quartered or ??

slewie the pi-rat

t&i, i had the same thought, but then figured: on a long enough timeline…

in the ex-peri|mental social science of human economics, now in its _____(?)[U-Pik-Em] year, things DO seem a bit more archetypal than usual, these daze, commonly ending in dualistic thought : we are ____’d. or: they are ____’d. or: everybody is ____’d.

so, even dualism, itself, has gone ape-shit!
poor Karl!
coming soon: Hegel loses it, too!

in slewienomics, ZIRP is the result of the last “smooth” transition from the previous w.w.WTF.
and fear not, planetary captives!
you won’t BELIEVE the “smooth” transition to the next w.w.WTF.

i guarantee it!


Like your work.
Could you run the comments through the “nut monitor.” Some of them are to much for the human unit.

peter tesoriero

Have been a subscriber now for a few months. Daily Reckoning and Kris’s “small caps”.
when I first joined a lot of comment was dedicated to the shale oil issue.
Have not heard much mention of late.
Is it still an issue worth pursuing as an investor

love your informative bulletins

Peter Tesoriero

Sooner or later the global financial bubble will POP! And someone will be the winner! Either way, we’re all F…..d! Unless you’ve got slightly more than 2million in cash or bullion, ur up the proverbial with nothing more than your wits and a natural survival instinct. This is why I decided some time ago to take a job in water/wastewater treatment. No matter what, as long as society doesn’t disappear up it’s own butthole into apocalyptic mayhem, I’ll always have some sort of income for my family. There are some occupations that will hold up in a global depression, the… Read more »
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