Current low interest rates do not cover the risk that banks would take.

And, incidentally, the current agitation about interest rates is a bit over the top.

Current ultra low interest rates may be scaring people about the adequacy of future income.

Since the interest rate set by the ECB is now less than 1 , there is little difference between its current monetary policy and what the Bank of Spain would do if it could set its own interest rate. But when the euro zone starts to recover, the ECB might choose to raise the interest rate before a higher rate would be appropriate for Spain, which could exacerbate Spanish unemployment.

That translates into an additional 16billion per year in interest payments on Greece s current debt of 273 billion.

This means extending the maturity dates of debts and reducing the interest rate on the new debt to levels much lower than currently unsustainable market rates.

A stronger renminbi would also reduce demand pressure more broadly and more effectively than the current policy of raising interest rates.

East Asian countries were told to raise their interest rates, in some cases to 25 , 40 , or higher, causing a rash of defaults. In the current crisis, the US Federal Reserve and the European Central Bank cut interest rates.

Although new systems have streamlined routines and the reconciliation of payments through one bank has helped, the volume of payments currently being made dictates a need for additional resources.

The current differences in the interest rates of euro zone government bonds show that the financial markets regard a break up as a real possibility.

On the contrary, they are puzzled about why we view the current low level of US long term interest rates as worrisome.

But the current version of this promise not to raise the overnight interest rate until the unemployment rate drops below 6.5 no longer implies that short term rates will remain low for an extended period.

This is why the current spiral of ever lower interest rates in Germany (and northern Europe) and higher risk premia for most of the rest of the eurozone is so destructive.

But the ECB has made it clear not only that interest rate cuts are not on the table it is merely postponing, not abandoning, the interest rate increase originally planned for September.

On the contrary, positive expected inflation would reduce the real (inflation adjusted) interest rate not a bad thing under current conditions.

Current low interest rates do not cover the risk that banks would take. To be sure, they could raise the rate for new and small borrowers but, in the current political climate, they would stand accused of stifling economic recovery if they did.

If inflation turns out to be higher (a very likely outcome of the Fed s recent policy), the interest rate on long term bonds could be correspondingly higher.

Savings behavior invariably reacts to changes in interest rates, which have fallen steadily over the last two decades to today s record low levels.

The interest rates projected by the CBO assume that future inflation will be only 2.2 . If inflation turns out to be higher (a very likely outcome of the Fed s recent policy), the interest rate on long term bonds could be correspondingly higher.

Drastic action is needed to prevent European bond markets from drying up. Trichet has said repeatedly that current ECB interventions do not target interest rates.

To define an interest rate fully, allowing comparisons with other interest rates, both the interest rate and the compounding frequency must be disclosed.

What good will that do?

Moreover, by pushing interest rates toward zero, the current policy of quantitative easing (increasing money supply by buying government securities) has strong, often regressive, income effects.

The arguments for low interest rates seem to me to require a degree of government competence that is unlikely, given political parties' current positions and the existing structure of the institutions that make fiscal policy.

But such loans can be of great value to sophisticated firms and households that may have good reason to believe that their future earnings will be higher than their current earnings.

The world s central banks are already cutting interest rates on safe assets, and will cut them more as the proximity and magnitude of the likely global slump becomes clear.

The only plausible inflationary scenario presupposes that when economies recover, central banks do not raise interest rates sufficiently in the coming boom, keeping too much of the current liquidity in the market.

So far, the US response appears to be more aggressive than that of the euro zone, as the European Central Bank falls behind the curve on interest rates and the EU s fiscal stance remains weak.

So the policy debate now under way is about whether monetary policy can stem deflation and what happens if and when the zero lower bound on interest rates is reached.

Interest

At current interest rates, banks lend to the government, large stable corporations, and commercial real estate dealers they do not extend credit to riskier borrowers, like start up companies or first time home buyers.

We continue to have questions about the utility of expanding the strength of the United Nations Operation in Côte d'Ivoire (UNOCI) beyond its current mandate, given the lack of political will shown so far by the parties to move the peace process forward.

Nonetheless, current interest rates were described as still appropriate in October, signaling that the ECB has not yet reached a decision to bite the bullet. To be sure, an unexpected slowdown in economic activity or a strong rise in the value of the euro could postpone the inevitable rate hike.

That way, formal haircuts on the face value of debt can be avoided via new bonds that include only a maturity extension and an interest rate cap that is set below today s unsustainable market rates.

When a government borrows a euro (or a dollar, pound, peso, or yuan), it commits itself to pay a euro in present value of future interest payments and eventual repayment of principal.

Interest Rates

Second, China s central bank still controls interest rates by enforcing a roughly three percentage point spread between deposit rates and lending rates.

The second source is private investment. The world s central banks are already cutting interest rates on safe assets, and will cut them more as the proximity and magnitude of the likely global slump becomes clear.

That is all there is to their usefulness.

In Brazil, interest rates remain close to 11 .

What Use Are Economists?

Reserves of foreign currency provide a small return in interest.

An expectation that interest rates will be high sometime in the next decade should mean high interest rates on long term bonds today.

But real interest rates did not fall enough, because nominal interest rates cannot go below zero.

Investors are buying long term bonds at the current low interest rates because the interest rate on short term investments is now close to zero.