NEW YORK TIMES: …With concerns mounting about the slow pace of economic growth and with prices hovering not far above outright deflation, the European Central Bank last month took the extraordinary step of setting its deposit rate to minus 0.1 percent, a move that, in effect, charges lenders for holding money at the bank instead of loaning it out.
The central bank also cut interest rates closer to zero and announced more low-cost loans to encourage banks to lend to the real economy.
The need for such measures was underscored by a separate report by the central bank on Monday that showed lending to the private sector contracted again in May, shrinking 2 percent from a year earlier. Loan growth has been shrinking since March 2012…. (more)
EDITOR: For years now we have warned that the Euro zone was a huge mistake and reluctance to allow the southern nations to leave or, better yet, Germany to depart, and the imposition of draconian taxes and huge layoffs were the opposite to what Keynesian economics espoused for times of recession and depression.
Monetary policy with its low interest rates will not induce people to borrow or institutions to lend. It is fiscal stimulus (deficit spending by the government) that “primes the pump” and induces consumer spending and subsequent business investment
We see here at home how sole reliance on monetary policy has only pumped up the stock market and made the rich richer. We see it in Europe. What a pity. It is causing a lost generation.
