European Monetary Authority

The European Central Bank has decided to lower rates to 1%, marking a new record low. Trichet has not ruled out new rebates in the future, although he has said that 1% is the correct type in these moments. Since the official interest rate will mark historic highs in the summer passed, to 4.25% (remember that in a pretty controversial decision, reached up 0.25% when the economy already was deflating), the official price of money accumulates seven descents of between one and two Quarts (each cuartillo is equal to 0.25%). Apart from the error which meant the annotated rise, I would have been supporter of European Monetary Authority would have been more decisive in the downhill, which come more down at once, as did the Bank of England. Is not that the result of this has been best (circumstances are not equal) but get me the impression that this descent to eyedropper failed to stimulate the economy, always expected that there would be new rebates, with which we are now in a near zero, type and the economy continues to stagnant. In any case, in eight months it has fallen more than three points, which should have been a pretty big stimulus.

And however, the effects of this action have been fairly limited. The savings that consumers may perceive in their mortgages may be limited on many occasions by a soil (i.e., mortgages that have a minimum euribor), on other occasions yet there has been the revision of types (which is usually annual), and those who have already had it prefer to save the rate of savings in Spain spent around 10% to 24% in just one year. As for new appropriations, banking institutions are quite reluctant to grant them, and apply a few raw risk differentials, call them – very high, which are winning with these low rates are the banks, as it explained a few days ago. In addition, the increase in savings, which in other circumstances would be positive, may not be so now, by the paradox of thrift, according to which, to decrease consumption (how It is happening), it produces less and generates unemployment (in a spiral without a final clear) with which the end society as whole is poorer. On the other hand, we are immersed in a situation of liquidity trap described by Keynes 75 years ago (in the middle of great depression), since all the money that is injected into the system in different ways are treasures in the form of liquidity by banks and companies and consumers, given the poor prospects, are not willing to invest or spend. Already Japan in the so-called lost decade, has lived this scenario so something we should learn from the experience. So it does make sense continue lowering rates? From my point of view, not. Other types of actions that can reduce long-term rates may make more sense now, but apart from conventional monetary policy is exhausted.

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