AESOP wrote in the 6th century BC about the North Wind and the Sun competing to remove a traveller’s cloak from his back.
The more the North Wind blew, the tighter the traveller wrapped his cloak around him.
But when the Sun beamed, he removed it of his own accord.
Central bankers have clearly forgotten their AESOP – they have spend years trying to remove our savings from our bank accounts by blowing their chilly North Wind of ZIRP on them, and are even talking about a hurricane of NIRP, but yet what do we see?
Well, because when you are told that your nest egg is yielding less income than you had planned, you don’t give up and start spending it. You save more, to increase its size.
Turns out that grandpa wanted $2000 a month with which to play golf and at 5% knew he needed a $500K nest egg. Now he is getting 2.5%, the nest egg needs to be……
So he is desperately tucking away more.
So much for the windy egghead central bankers, who were sure that less interest would mean more spending.
The Sun is higher rates – allow the market to deliver returns to investors and they will spend of their own volition. But of course highly indebted governments can’t afford that, as who would buy bonds at 1% when they can get low-risk 6% elsewhere? Ergo, governments have forced bond yields down and…………..debt stack collapse.
I guess we are about to see whether negative interest rates will do the trick – will retirees take their money out of the bank if charged interest to keep it there?
Will they spend it? Who knows? I doubt it.
Of course if NIRP is going to cause bank runs, we might see capital controls. Probably best to ban cash first.
Can’t have those old people taking their money out at the same time, can we, unless we want to see the ghost of George Bailey again.
It turns out that the central bankers are just like the North Wind. They blow, but they suck too.