Professor Richard Werner, interest rates do not drive the economy.

Download a transcript of the interview in Swedish here: bit.ly/3IGnHIp
Professor Werner talks about the empirical study he made about nominal interest rates and economic growth. The facts suggest clearly that interest rates do not drive the economy and they are not negatively correlated. This would mean that monetary policy, as used by central banks, would, at best, be very ineffective.
Professor Richard A. Werner holds a First Class Honours B.Sc. in Economics from the London School of Economics and a doctorate in Economics from the University of Oxford. He has also studied at the University of Tokyo.
Richard is a Member of Linacre College, Oxford, and is a university professor in banking and finance. He is also a founding chair of Local First, a community interest company establishing not-for-profit community banks in the UK (including the Hampshire Community Bank). Until February 2019, Richard was for many years a member of the ECB Shadow Council.
His work experience includes: chief economist at Jardine Fleming Securities (Asia) Ltd., a stint as Senior Managing Director at Bear Stearns Asset Management Ltd., many years managing global macro funds, several years as senior consultant to the Asian Development Bank and periods as visiting scholar and visiting researcher at the Japanese Ministry of Finance and the Bank of Japan, respectively.
His book ‘Princes of the Yen’ was a No. 1 bestseller in Japan, beating Harry Potter for six weeks.

[@wellyman2008]

Richard Werner with Steve Keen have fundamentally changed my worldview in my late 40s having studied economics to a Masters level!

[@davidwilkie9551]

This brings "The biggest of big lies" into focus. Thank you.

[@forexforfuntrader1937]

Richard Werner is brilliant!!! 👏

[@barbaraherda9212]

Fantastic discussion - thank you! I found this channel indirectly via Catherine Austin-Fitts.

[@23drcharles]

Sidney Homer's massive study on interest rates is a historical-based analysis. The problem is that bank creation creates growth, therefore, leading to growth and then to higher interest rates. The Federal Reserve actually impacts money creation through policy and uses this to finance the banks. The issue remains that the financialization of the economy creates the interest policy. The fact of financialization is the driver.

[@tigerchakrapani6021]

Rare Dimond...Richard werner,🎉🎉🎉

[@S41GON]

I think professor Werner would agree with this Milton Friedman quote: _“After the U.S. experience during the Great Depression, and after inflation and rising interest rates in the 1970s and disinflation and falling interest rates in the 1980s, I thought the fallacy of identifying tight money with high interest rates and easy money with low interest rates was dead. Apparently, old fallacies never die.”_

[@S41GON]

Maybe the connection between growth and interest rates has something to do with the type of investment the interest rates incentivise. My hunch feeling is that low interest rates lead to finacialization and malinvestment in the economy. Of course in an environment like that raising interest rates can be quite destructive as the tide goes back, it will reveal who's swimming naked. High (or even normal) interest rates on the other hand can act as a barrier to filter out bad investment, so in a sense it's restrictive, but in a healthy way.

[@Tapas2017]

Summary: Interest and economic growth are positively correlated. Growth leads Interest rates. Higher growth leads higher rates. Lower growth leads to lower rate. So IR cannot be used as monetary policy.

[@wilddan1072]

U got it!!!!

[@mjsmcd]

Lower growth willl lead to rates being lowerd to stimulate

[@dr.a.t.wijerathna9671]

Economics approximately comes under non equilibrium thermodynamics

[@mjsmcd]

What about iflation ? The Fed has raised rates to fight it aka slow down borrowing.

[@waynemcmillan5970]

Interest rates don’t drive the economy, but they may encourage or discourage borrowing. Now consumer confidence decides whether businesses will expand their activities. If you have no demand for your goods and services, low interest rates won’t stimulate the economy. Equilibrium economics is neoclassical economics and most intelligent heterodox economists know it’s axioms are flawed. When an economy is in recession unless a government runs a deficit and spends into the economy, there will be no increased demand for private goods and services.

[@bruce4130]

Governments huge debts to stimulate the economy may well be more difficult if not impossible!

[@waynemcmillan5970]

Why Bruce?

[@waynemcmillan5970]

@@bruce4130 Bruce, Why? Have you read ‘The Deficit Myth’ by Stephanie Kelton?

[@matteocicchetti2086]

I love this man

[@mjsmcd]

They never got back to what does drive growth then if it's not lower interest rate what does drive growth they need to tell us Does anyone kmow?

[@bitpancake]

Elsewhere Richard Werner posits that the quantity of credit creation for the real economy (in contrast to credit creation for the financial economy) drives growth. See Werner's paper "Reconsidering Monetary Policy: An Empirical Examination of the Relationship Between Interest Rates and Nominal GDP Growth in the U.S., U.K., Germany and Japan" for more detail.

[@mjsmcd]

Thanx

[@mjsmcd]

Never got to what then causes growrh

[@milire2668]

true human

[@mjsmcd]

Lower rates lead to borrowing

[@bruce4130]

But if a recession or depression of the economy has lower rates, it doesn’t necessarily mean people will borrow money! Who will borrow money if their business is doing portly, or more unemployed people cannot get a loan!

[@xaharsaruji3714]

I am going to present my Proposal Defence for my PhD Dissertation titled 'Re-Evaluating the Current Implementation of Monetary Policy: Taking Into Account the Impact of Credit Money in Total Money Supply of the Nations'... in my Literature Review I will include the inverse correlation between Base Lending Rate and Inflation Rate/GDP growth; the three theories of banking; Credit Creation Money; the contribution of Credit Money in Total Money Supply; Window Guidance practice in Japan [1950s-1980s], in South Korea [1990s-2010s] and China [2000s-2020s]; and maybe few other aspects of Monetary Economics that relate to our real life. I feel obliged to spread Dr. Richard Werner's gospel of Monetary Economics to the general population. The understandings of Macroeconomics should not be confined to a small group of people who call themselves as economists and a small group of people who works at Central Bank Institutions. Analogically, if Dr. Richard Werner is the 'Jesus' of Modern Monetary Theory, I just want to be one of his disciples.

[@toddstevens8506]

Our world, one endless propagandistic fairytale.

[@iosefaandrews2351]

Richard is a great thinker, but sometimes he takes a long time to make a point.

[@real1t1ychek]

I'm not a fan of Werner in general, & especially not his support for Positive Money's nonsense. (Presumably, Positive Pengar is the Swedish version of PM's ignorant fakery.) But this has some interest... the meat of it starts around 11 mins in where Werner states his empirical study of rates (actually 7yrs ago & apparently a virtual first study by anyone on the topic?) suggests the correlation between rates & economic growth is opposite to the mainstream view. Moreover, he also states that they found the direction of causation is also opposite - ie increased economic growth *causes higher interest rates. The correlation conclusion is not surprising, as Warren Mosler has already stated that mainstream economists & CBs have the rate relationship 'backwards' (& fwiw I think Warren is dead right, as usual). But it's disappointing that Werner doesn't talk more about that direction of causation 'result' he found, and lends weight to my view that Werner is not generally a competent source. The point I'm making - obvious to me as Werner stated his causation conclusion - is that interests rates are set as an active, intervention policy choice. So, given the mainstream (false) rationale for raising rates, ie. supposedly made when economies show signs of accelerating growth & supposed risk of 'overheating', well, the 'discovered' driving mechanism is already in full view as a matter of exogenous policy intervention by CB's 'monetary policy' committees! Yet, Werner & his interviewer both give the impression that this direction of causation 'conclusion' is somehow revelatory in character (!).

[@chaddy2409]

From what i saw he didnt support positive Money, on his website there is an article where he confronts them.

[@wilddan1072]

Do u have any imperial evidence or did u do any study supporting yr argument that will prove Richard's theory wrong?

[@mjsmcd]

Lower Rates lead to more borrowing which leads to more spending and income and the production doesn't match that leads to inflation so then rates are raised to lower spending Prices come down and rates are raised again The short term debt cycle

[@real1t1ychek]

@@mjsmcd Not how it works as low rates post 2008 proved. The mainstream have it backwards. Recent increase in rates, eg. in US especially where they add about 4% of GDP in Gov deficit spending via the Gov Bond interest channel - all 'new' money, given to the rich. This has significantly added to demand spending, albeit regressively, & the GDP growth. It has had no effect on inflation even whilst adding to spending, because the inflation near all related to temporary price hikes in global energy & food costs, which plateaued a while ago. Inflation - a *continuous* raising of price level - is never initiated by 'money supply' fluctuations. It's always caused by supply chain disruptions &/or price hikes to significant commodities beyond a country's jurisdiction to regulate.

[@mjsmcd]

@@real1t1ychek well imflation caused by mpre borrowing and spending that production cant match ? So higher rates mean less borrowing smd spending bringing prices down right?