In the earliest days of ultralow rates, banks benefited as their securities portfolios rose in value, loan defaults declined and funding costs dropped. Indeed, policy makers viewed low-rate policies as supporting banks and the broader economy.
Yet those benefits faded as loans refinanced at lower rates and one-time boosts to bond and loan portfolios ran their course. Over time, gains dissipated and lower rates remained, squeezing bank profit margins.
.. Between 1996 and 2006, U.S. banks had an average return on assets of 1.23%, according to Federal Deposit Insurance Corp. data. Since 2010, the average has been just 0.94%, the data show.
.. If U.S. banks had earned the precrisis average return, cumulative earnings.. would have been around $1.07 trillion. Actual earnings were around 27%, or around $250 billion, less, according to FDIC data.
.. Regulators have required banks to hold more equity. That, combined with lower returns on assets, has led to far lower returns on equity. Between 1996 and 2006, the return on equity for U.S. banks averaged 13.65%, according to FDIC data. Since 2010, the average has been 8.40%.
Trump can’t revive industry. But his voters might still get raises.
Wage stagnation in the Rust Belt likely won’t endure through his presidency.
If Trump can simply find a way to keep the economy growing even modestly for several years, and if the unemployment rate remains low, he has a good chance of presiding over a period of sustained wage growth similar to what America saw in the mid- to late 1990s, when Bill Clinton was president.
.. They might not bring back many factory or mining jobs, but they will boost the paychecks of the men and women who lost production jobs years ago and remain angry about it today.
.. For all Trump’s railing against the “terrible” economy under President Obama, census data released in September shows that typical workers at every level, from the very poor to the very rich, experienced income growth in 2015.
.. Americans without college degrees started to see rising incomes as far back as 2013.
.. his promises to deport millions of immigrants quickly and to threaten tariffs on trading partners such as China and Mexico in an effort to revive the millions of manufacturing jobs lost in the Rust Belt since the turn of the century.
.. Most forecasters say the policies would, instead, dampen job growth by reducing the labor force and raising prices on imported consumer goods, and would possibly push America into recession.
.. There’s a good chance — which markets are already pricing in — that those plans could stoke higher inflation. The Federal Reserve could respond by raising interest rates more quickly than expected, which could pump the brakes on growth and possibly cause a downturn.
.. What Trump needs is just enough policy fuel to continue growth, without provoking a shock — from a trade war, interest rate hikes or anything else — that would send the economy tumbling.
What Two Years of Negative Interest Rates in Europe Tell Us
It hasn’t worked very well. As many experts predicted at the time, the policy has had only a modest impact on growth. It is also increasingly clear that pushing rates down further wouldn’t help much and could, in fact, increase risks to the global financial system.
.. It would be far better if European governments used fiscal policy to increase demand by investing in roads, bridges, railroads, ports and other infrastructure... Bond investors are willing to lend money to the German government for 30 years at a rate of just 0.38 percent; in France, the rate is only 0.878 percent... The worry among many experts is that banks, institutional investors and even individuals desperate for higher returns might be seduced into taking foolish risks. They might also be tempted to make big investments overseas, driving up the price of stocks and bonds in the United States and Asia and creating bubbles.. In addition, persistently negative rates could well force European banks to raise fees on checking and savings accounts to recoup the rising cost of depositing reserves at the central bank. This, in turn, would encourage individuals and businesses to take some of their money out of banks and stash it in safes, or under mattresses.
Time to Borrow
the federal government can borrow at incredibly low interest rates: 10-year, inflation-protected bonds yielded just 0.09 percent on Friday.
Put these two facts together — big needs for public investment, and very low interest rates — and it suggests not just that we should be borrowing to invest, but that this investment might well pay for itself even in purely fiscal terms. How so? Spending more now would mean a bigger economy later, which would mean more tax revenue. This additional revenue would probably be larger than any rise in future interest payments.
.. what matters is the comparison between the cost of servicing our debt and our ability to pay. And federal interest payments are only 1.3 percent of G.D.P., low by historical standards... If 10 years isn’t long enough for you, how about 30-year, inflation-protected bonds? They’re only yielding 0.64 percent... American greatness was in large part created by government investment or private investment shaped by public support, from the Erie Canal, to the transcontinental railroads, to the Interstate Highway System.