Reply to post: Re: Nuts! It is Not Big Tech.

Bloody TECH GIANTS... all they do is WASTE investors' MONEY

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Re: Nuts! It is Not Big Tech.

Billy Catringer,

You do realise that it isn't just Central Banks that set interest rates. Sure they have a base rate that's conveniently used as a benchmark. But you can be sure that if there were safe high return investments out there, then money would be pouring into them.

Low interest rates are in fact the cause of the crash, not its symptom.

It was over-saving in the boom that caused interest rates to be so low, when they needed to be higher to stop the asset bubbles and over-consumption. This was by China (trying to boost exports by keeping its currency down), by Russia and OPEC (saving for a rainy day), by other far Eastern nations (saving and protecting their currencies from China) and by large companies (partly as part of international tax-avoidance, partly for other reasons). All this cash sloshed around the world, desperately looking for returns. It forced down global interest rates, and meant it was cheaper to invest in stupid things, like huge property portfolios.

That all went pop in the bust, but the savings were still there. China was still supressing internal demand, and exporting capital. The oil price was still high, so the oil exporters were still living high on the hog (and saving away happily). This is now reversing a bit, as with the oil price collapse they're now spending their savings - so taking some of that capital back.

But the global savings rate is still incredibly high, hence low interest rates. That's why Germany today was able to sell 5 years Bunds at negative interest rates. There's loads of savings out there, but the people with them can't find anywhere safe to put them. So they're willing to pay the German government to look after their cash for 5 years.

In microcosom this is what has caused the Euro crisis too. Too many exports from countries like Germany and Holland. They then had all this cash, but weren't willing to spend it on imports. So instead they invested it in Spain and Greece. Rather badly as happened. Whereas the interest rates were fine for Germany, growing slowly in the mid 2000s, real rates were actually negative in Spain and Ireland (who were growing much faster). Their inflation rate was higher than the rate German banks were willing to lend to them at. Which of course whacked up inflation, and caused the bubble.

Globalisation (and the way people have responded to it) has caused the financial imbalances that made the boom so huge, and therefore the recession so bad. Hopefully we can correct this, without losing the huge poverty reduction that globalisation has caused. But it seems built into the Eurozone design, which suggests that however good their Central Bank is, the euro is still doomed.

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