Gross: Get rid of zero interest rates now

"Zero bound interest rates destroy the savings function of capitalism, which is a necessary component of investment. Why that is true is not immediately apparent. If companies can borrow close to zero, why wouldn’t they invest the proceeds in the real economy? The evidence of recent years is that they have not. Instead they have plowed trillions into the financial economy as they buy back their own stock. Zero destroys existing business models such as life insurance company balance sheets and pension funds, which in turn are expected to use the proceeds to pay benefits for an aging boomer society. My advice to (the central banks) is this: get off zero and get off quick. Will 2% Fed Funds harm corporate America that has already termed out its debt? A little. Will stock and bond prices go down? Most certainly. The time has come for a new thesis that restores the savings function– and that ultimately leads to rejuvenated private investment. Near term pain? Yes. Long term gain? Almost certainly." (VIEW LINK)


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