Does the Federal Reserve finally begin to realize their low interest policy has failed? For example in the minutes from the September meeting of the Federal Open Market Committee there is an interesting item: “A few participants expressed concern that the protracted period of very low interest rates might be encouraging excessive borrowing and increased leverage in the nonfinancial corporate sector.” And that was not the only quote that indicates some participants have the opinion low interest rates for an extended period of time are detrimental to a sound economy. The success or failure of central banks’ monetary policies greatly affect the global economy; hence, the health of the maritime shipping industry.
Of course, raising interest rates will not do anything to stimulate economic growth, but keeping them low has not either. The current situation is not a monetary problem; national governments must increase spending to increase employment. In virtually all cases this spending should be on infrastructure projects. The U.S. Federal Reserve does not appear to want to address this solution at all. Sadly, Fed chair Janet Yellen, and her predecessor Ben Bernanke, have continued the destructive policy of near-zero interest rates. Bernanke was too in love with his PhD thesis which studied the Great Depression; he should have reversed policy as soon as the financial situation was stabilized and it became clear that good high-paying jobs were not being created. President Obama should never have reappointed him and should never have appointed Yellen, who had been supportive of the same policy.
The Federal Reserve chair and other central bank chairs should check their egos at the door and realize when monetary policies cannot solve certain problems. Chairs should realize the power they have in publicly turning the problem over to national legislatures. Bernanke, and later Yellen, should have told Congress that rates were going back up and Congress needed to improve the economy with massive public works projects in the range of several trillion dollars. In other words, Congress needed to get money to workers instead of loaning several trillion dollars to Wall Street for little or no interest. An excellent measure of the global economic condition is the growth of China’s exports. And China’s September export numbers were very disappointing.
It is astounding that Mario Draghi has followed the same path. He is simply too weak to stand up against Angela Merkel, who has lead the European Union down the road of austerity and meager growth.
In analyzing the September FMOC minutes, one is left with a sinking feeling. While an increase in interest rates will help minimize the temptation for foolish managements to open their orderbook, that lesson has already been learned by virtually all maritime executives. The problem now is the need for massive infrastructure projects by national governments in order to give economic growth a real shot in the arm. The low interest rate policies by central banks has had the negative effect of lessoning the pressure on legislatures to fund the needed large projects. The review of the minutes indicate that there is no interest in the Federal Reserve chair to step up and prod Congress.
Clearly the only hope owners have now is to step up scrapping to reduce capacity. Otherwise we will continue to hear projections of recovery always being two years away. A moving target that is never achieved.