Tuesday, March 31, 2015

Ben Bernanke Explains Why Negative Interest Rates Can Not Exist Indefinitely

Ben Bernanke is posting away at his new blog and writes:
 As Larry’s uncle Paul Samuelson taught me in graduate school at MIT, if the real interest rate were expected to be negative indefinitely, almost any investment is profitable. For example, at a negative (or even zero) interest rate, it would pay to level the Rocky Mountains to save even the small amount of fuel expended by trains and cars that currently must climb steep grades. It’s therefore questionable that the economy’s equilibrium real rate can really be negative for an extended period. 
But, of course, you can never have a negative "natural interest rate" even in the short-term.


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