UK business confidence weakest since 2009; CAD & NOK weighed down by lower commodity prices; odds favour RBA rate cut next week

NatWest paves way for introduction of negative interest rates

Bank warns business customers it may have to charge to accept deposits but says it has no plans to do so for personal accounts Read more

According to Bernanke: If the Fed wants to see full employment of capital and labor resources (which, of course, it does), then its task amounts to using its influence over market interest rates to push those rates toward levels consistent with the equilibrium rate, or—more realistically—its best estimate of the equilibrium rate, which is not directly observable. Read more

Others have a differing view:

Though central banks purport to follow something like Knut Wicksell’s natural rate theory, in reality they have changed it around such that everything is viewed via the “demand” side; and thus nothing actually makes sense including the behavior of market interest rates.

This is what Milton Friedman called the interest rate fallacy, and it indeed refuses to die. We can tell what monetary conditions are in the real economy, as opposed to financial liquidity, though the two can be linked, by the general level of interest rates. When money is plentiful, interest rates will be high not low; and when money is restricted, interest rates will be low not high. The reason is as Wicksell described more than a century ago:

[The natural rate] is never high or low in itself, but only in relation to the profit which people can make with the money in their hands, and this, of course, varies. In good times, when trade is brisk, the rate of profit is high, and, what is of great consequence, is generally expected to remain high; in periods of depression it is low, and expected to remain low.

When nominal profits are expected to be robust, holders of money must be compensated for lending it out by higher interest rates. Thus, the same holds for inflationary circumstances, where nominal profits follow the rate of consumer prices. During the Great Inflation, interest rates weren’t low at all, they were through the roof well into double digits and higher by 1980. At the opposite end in the Great Depression, interest rates were low and stayed there because, as Wicksell wrote, the rate of profit was low and was expected to be low well into the future. High quality borrowers were given as much money as they could want while the rest of the economy was deprived of funds; liquidity and safety being the only preferences in what sounds entirely familiar. Read more

Alas, the RBNZ's last publicly released calculation of the Wicksellian neutral rate turned out to be ~4.3%. Read more

Oh for goodness sake , everyone must get over this Brexit thing now . The UK has achieved through this referendum what the EU and US could not achieve through money printing /QE

The UK Pound is now so competitive ( cheap) that its going to stimulate the economy substantially over the next few years

Secondly , the Swiss and Norway were never part of the Eurozone and the last time I checked they were doing just fine