ZIRP, QE, and Capital Destruction

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    Hi. Jim Willie claims that zero percent interest rates (manifested via QE) causes business owners to retire capital (which is capital destruction). Why are they incentivized to do this?


    It’s not the near zero percent Federal Funds Rate, which the Fed manipulates, or the near zero percent short term rates, which are influenced by the Fed policy, that is causing entrepreneurs to sit on cash instead of investing. Mid-term and long-term interest rates are low, but not at unprecedented levels. Ten year Treasuries are at 2.54 percent and 20 year at 3.47 percent.


    The reason entrepreneurs are sitting on the sidelines is uncertainty generated by government policies. Take a look at Robert Higgs’s work on this point.


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