Yesterday the US Federal Reserve Bank announced that it would not raise interest rates in the US above its current level of 0.0-0.25%. The Fed cited “global concerns” for the decision, a basis for which unnerved many investors. The effective interest rate of zero has been maintained since 2009 and such a low level has never occurred for such a long time in financial history. There is little question that the global economy is in uncharted territory right now and it is difficult to figure out what the future holds.
- Mesopotamia, c 3000 BC: 20%
- Babylon, Code of Hammurabi, 1772 BC: codified earlier Sumerian custom of 20%.
- Persian conquest (King Cyrus takes Babylon), 539 BC: rates of 40+%.
- Greece, Temple at Delos, c. 500 BC: 10%
- Rome, Twelve Tables, 443 BC: 8.33%
- Athens/Rome: circa the first two Punic Wars, 300-200 BC: 8%
- Rome: 1 AD: 4%
- Rome, under Diocletian, 300 AD: 15% (estimated)
- Byzantine Empire, under Constantine, 325 AD: limit 12.5%
- Byzantine Empire, Code of Justinian, 528 AD: limit 8%
- Italian cities, c. 1150: 20%
- Venice, 1430s: 20%
- Venice, (Leonardo da Vinci paints “The Last Supper in Milan), 1490s: 6.25%
- Holland, beginning of the Eighty Years’ War, 1570s: 8.13%
- England, 1700s: 9.92%
- US, West Florida annexed by the US, 1810s: 7.64%
- US, circa World War II, 1940s: 1.85%
- US, Reagan administration, 1980s: 15.84%
- US, Fed does not hike rates in September, 2015: 0-0.25%
Zero interest rates are a manifestation of the sluggish growth in wages in the US and around the world. There actually has been incredible growth in some sectors of the economy, but those gains are not spread evenly across the population. The St. Louis Federal Reserve Bank provided statistics comparing corporate profits and wage growth in the US since 2009, the onset of the Great Recession. The chart is revealing:
It certainly does not appear as if wealth has “trickled-down.” But Jamie Dimon, CEO of one of the largest banks in the world, JP Morgan Chase, does not believe that the statistics reveal the truth. Bloomberg reports Dimon as saying:
“It’s not right to say we’re worse off,” Dimon said Thursday at an event in Detroit in response to a question about declining median income. “If you go back 20 years ago, cars were worse, health was worse, you didn’t live as long, the air was worse. People didn’t have iPhones.”
For the record, I do not have a smartphone (nor do I want one). And I suspect that most people would enjoy at least some share of the corporate profits since their labor produces those profits. But the corporations do not even need to be profitable for income inequality to get worse. Jeff Smisek, the former CEO of United Airlines, was forced to step down because of corruption charges. Even though United’s stock is down 15% this year, Smisek received the following severance package:
“United will hand Smisek nearly $5 million in cash plus other financial compensation that could top $20 million.
“In case he’s ever in the mood to travel, no problem. Smisek gets free first-class tickets on the airline for the rest of his life.
“He also gets free airport parking for life, health insurance until he’s eligible for Medicare in about four years and, oh yes, the keys to his company car.
Nice work if you can get it.
For those who have followed this blog for some time, it is no secret that I believe that climate change is occurring and have little patience for so-called “deniers“. One of the more persistent themes in the denial meme is that there has been a “pause” in the rise in global temperatures, presumably indicating that human activity cannot explain the variations in temperature since the warming process has not been “linear.” There are four new studies, one which tested the data with economists who were asked to review the data labelled as “agricultural” production (in other words, a test which presumably screened out bias on the issue of climate change), which emphatically refute the idea that there has been a “pause” in the rate of global warming.
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