Low interest rates, by inspiring laziness, sometimes also act as a determent to economic activity

I just want to add a factor that I feel has been ignored in all the ongoing debate on how low or even negative interest rates can stimulate economic activity.

During my life as a financial and strategic consultant, I have often seen how the pressure of the interest-costs-clock on projects, have really inspired these to get going, to execute fast. In other words, low interest rates can also inspire laziness.

What a great deal! Take loan at negative interest rates... do nothing... stay in bed... repay... and profit!

Was it an accident or is it a statist setup?

In 1988, suddenly, without asking anybody, least us citizens, bank regulators, for the purpose of setting the capital requirements for banks, decreed the risk weight of the sovereign, the government, to be Zero Percent, while the risk weight for We the People was set at 100%.

Not having to hold capital against sovereign debt permits banks to lend to government at lower rates; which translates into a regulatory subsidy of government debt.

Then in response to the 2007-08 crisis, itself a result from distorting bank regulations, central banks launched quantitative easing, which basically meant injecting liquidity into the economy by purchasing government debt; and for example the Fed has ended up with about of US$ 4.5 trillion in government paper.

Much of the liquidity injected went to prop up real estate, bonds and shares, but a lot of it spilled over into more demand for government paper.

Naturally, interest rates for public debt fell, and many, like pension funds, in order to adjust for their liabilities, had to purchase even more public debt.

And while regulatory subsidies of public debt are kept in place, this vicious circle will continue.

And to top it up, too many “experts” now advance the argument that government should take advantage of these low interest rates, to launch infrastructure projects.

Let me be very clear about it, the fact that government might (artificially) even be paying a negative rate on its borrowings, does not mean it should borrow, because it is still very capable of investing those funds in projects yielding even more (real) negative rates.

I do not know how we got to this point, whether by accident or whether a set up by runaway statists. You tell me!

PS. When utilities were being privatized in South America, I often heard accusations in terms of “savage neo-liberalism”. Since these utilities were not adjudicated to whoever offered to serve us citizens the best and the cheapest, but to whoever offered to pay the government the most, a tax advance that left us with a huge bill to pay at private investment rates of return, to me those privatizations were much more an expression of sadist statism.

Must we respect central bank’s independency even if they go crazy and statist?

What is this with QEs injecting huge amounts of money buying government debt because that is supposedly safer? Who on earth can believe government bureaucrats know better what to do with other peoples’ money than citizens with their own? 

What is this with negative interest? Just months ago the elderly were to retire later, in order for their sacked by the government pension or social security funds to be able to pay them something… and now they are to retire as fast as possible to get at least something? 

What on earth is this with the risk weights that determine the capital requirements for banks? 100 percent for the citizens, and zero percent for the government? They’ve got to be kidding.

What on earth is this with the risk weights that determine the capital requirements for banks? Higher when financing the riskier future than when refinancing the safer past? Just wait till our kids find out! 

Are we sure we have not packed our central banks with Chauncey Gardiners?

PS. Since I now do not even trust the pilots, I don’t want Helicopter money any more, just a Universal Basic Income.

PS. 2006 Long-term benefits of a hard landing