#neir: negative equilibrium interest rate
Thoughts about one of the most essential problems of the worlds market economies
#neir stands for possibly most important defect in our financial system: The fact that our monetary systems (no matter if Euro, US$ or Yes) is incapable of reflecting negative equilibrium interest rates properly, even though such can definitely occur temporarily. But our cash-based monetary system can reach netative interst rates just by inflation or defaults, which both for sure have side effacts equally as bad.
Even though my analysis is not based on it, for 2009 the Taylor rule also indicated negative interbank rates, to clear the monetary market.
Explicitely I am not criticizing our debt base monetary system itself nor fiat money, as with a gold standard or similar, the #neir problem would even be worse. No more am I criticizing compound interest, which only leads to an expoential growth of depts and deposits because the real interst rate is too often way above (negative) equlilibrium interst rate. And finally, I am not critizising cash money, which also has its good right to exist.
Even though there are plenty of ideas to remove this defect from our monetary system, I don't favor any specific solution, as I consider dogmatic pursuance of a specific solotion as being dangerous as long as the problem is not really understood in depth.
Further informationen about the topic:
- the #neir problem in a graphical presentation (PDF, German)
- the #neir problem in a textueal presentation (PDF, German)
- Economists about the #neir Problem (German, but mostly links to websites in English)
- #neir in 10 Tweets for #btw13 (Deutsche Bundestagswahl 2013, German)
- natural equlibrium: negative equilibrium interst rate even at times of economic growth