Jacques de la Rosière is a former Managing Director of the IMF. He is also one of the members of the G30.
What does Jacques de la Rosière say in this talk with our friends from Ecorama?
The same as me but otherwise, namely that there is no free meal, there is no painless crisis and that we do not pay.
0 interest rates are the worm in the economy according to the former IMF CEO and he is right.
From the moment when the money costs nothing,
From the moment when saving no longer brings in anything and is therefore useless.
From the moment an interest rate is negative it means several things.
Interest rates measure several things.
1 / The rate remunerates the risk of the loan.
2 / The rate compensates for the fact that I do not use my money immediately.
3 / The rate pays for time, and the fact that tomorrow is less certain than today.
A negative rate means that the future is more certain than the present, that lending is risk-free, and that my money is useless …
Negative rates are therefore an economic aberration.
We therefore agree with the basic finding.
Jacques de la Rosière adds something else, he says that “What reduces poverty is private investment, but private and productive investment has only collapsed for 15 years”.
Here too he is right.
So can we raise interest rates?
No, but in fact yes … it all depends on how you do it!
I think that the so-called key interest rates that is to say unique for the whole economy are a 19th century stupidity!
Obviously when we didn’t have a computer it would have been more difficult but today, between the NAF, APE codes, the nomenclatures and all the complicated things that we have put in place to monitor things and do statistics, we are perfectly capable of giving differentiated interest rates depending on your sector or the thing financed.
Well, we can’t raise the rates because if we raise them, we raise them as well for GAFA which are crumbling under money as for over-indebted States which would be bankrupt or for the SME of Mr. Michu who is a garage owner in Trifoully the geese…
Multiple and differentiated rates
Nothing prevents us from having a different rate for GAFA, the over-indebted state and… Michu’s garage!
Nothing prevents us from having differentiated rates according to the assets financed. A share buyback is 10% per year, which will prevent a bubble in the shares! A real estate purchase? 4% in order to avoid an eternal increase which prevents the youngest from becoming owners. Credit for a new factory? -0.5%! And yes, we must help the investment. A loan for Mr. Michu’s garage or Mr. Durand’s SME? -1% we must save the PME soldiers in the post-covid crisis.
We could do all of this, if we were imaginative and creative.
We could do it if we had sane intentions.
We could do that if we also had our monetary sovereignty.
Negative rates are economic nonsense that barely masks the gravity of our situation.
We should go back to positive and differentiated rates.
For government debt, the only way to avoid catastrophe is to monetize it, and negative rates are a hypocritical way to do it.
The problem is that it is imposed on the entire economy and that we break all the pricing mechanisms.
We could do completely differently with this differentiated rate proposal.
A proposal always greeted by deafening silence.
It is already too late, but all is not lost. Prepare yourselves !