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A Monumental Monetary Failure

Feb 1, 2017


More proof negative rates are a failure

The negative interest rate experiment continues. In Denmark, rates have been negative since 2012. How's it working out?

Not so good... at least, not if you judge it by the standards of the people behind the scheme.

Last week Bloomberg reported that Danish households are "richer" than ever. They're not. They're saving more than ever. Whether that means they're richer, or qualitatively better off, is another thing.

But negative interest rates are supposed to create the opposite effect, right? They're a disincentive to save. They're supposed to make you spend and invest to stimulate the economy. That's the ideological theory behind them.

On that level, increased savings just prove that negative interest rates are a failure. They don't make people want to spend. They make them more likely to save. So they're actually deflationary, rather than inflationary.

The underlying point is that what works in theory doesn't always work in reality. Why? Because theories assume people are rational. They assume people will behave in a predictable way.

But we're not rational. We're emotional. And once you introduce psychology into the mix - which is what negative rates try to do: change the way people think about money and saving - you introduce an inherent level of unpredictability.

By the way, this is something that MoneyWeek executive editor John Stepek predicted two years ago. Negative rates create a deflationary mindset, not an inflationary one. They're counter-productive.

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British doctors cure leukaemia using revolutionary new technique

I've spoken to you before about the potential benefits of genetic engineering: remaking the world as we want it to be to live longer, healthier and richer lives.

It's a big theme. I wrote about it at length in The Exponentialist. But it's not something that just works in theory. It's changing the way we think about medicine right now.

Just last week doctors in London announced they'd cured two leukaemia sufferers using genetically modified immune cells from a donor. All other avenues of treatment had been exhausted. Genetically engineering a treatment succeeded.

I've been preparing a special investigation into genetic engineering, including insights from experts right on the front line of the industry. More on that as soon as it's ready!

Solve "The Trump Question"

And finally, there's just time for our "confused elite resort to violence" of the week award.

When asked how to deal with the Trump "catastrophe", German newspaper editor Josef Joffe suggested that if impeachment doesn't work, the alternative would be "murder in the White House".

Ah yes. That's the answer. It's funny how supporters of democracy resort almost immediately to much more violent and authoritarian strategies when they don't like the results of a vote.

Actually, it isn't funny!

Please note: This article was first published in Capital and Conflict on January 30, 2017.

Nick O'Connor is a writer and editor at Moneyweek. He is also the publisher of Exponential Investor.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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