The basis for ZIRP or NIRP and QE is that people are sitting on cash and not spending it. The U.S. does have a lot of savings but also has a lot of spending. They are trying to get everybody to spend more. They especially love it when you borrow and spend. The greater percentage the consumer is of an economy the more it is important to spend spend spend. The Keynesian words behind it is that demand must be created.
Over the decades as interest rates have dropped, savings in houses, the stock market, and bonds has increased in order to make up for the lower and lower interest rates on saving cash. I believe this phenomenon will happen with a vengeance if they go negative interest rates. Asset prices will go up but consumer spending won’t.
They also think that increasing prices will result in more spending, that is, increasing demand. Inflation has a side benefit in reducing the burden of debt. Furthermore, inflation increases asset prices so wealth is increased. Which theoretically increases spending. Nice little loop system they got going. I think this will fail also and cause the majority of people to clamp down on spending, tighten their belts every way possible.
Thing is, you don’t have both negative interest rates and inflation. It is one or the other. Theoretically. I really don’t know what I am talking about.
There is a massive percentage of the population that cannot spend anymore because they don’t have more to spend. You can’t tax them any more either. And there are a lot of people who have more but are quite content with their life style and don’t see any sense in spending more. Saving for retirement is more important to them. Taxing the upper middle class will cause them to retrench. There isn’t enough income from the rich to make a difference before they retrench also, especially investing in property, plant, and equipment. Older people, of which there is a growing number, spend less.
Thus, massive deficit spending will be the solution. Funded by printing money. Krugman just called for it. Ambrose Evans-Pritchard just called for it. Many lesser names have been calling for it. Most big economists are afraid to say such sacrilege. What is ironic, is it likely to be done under a Republican president, house, and senate. That fact alone is how it will become palatable to everyone as the objection to it normally comes from Republicans. Increased spending on the military industrial complex will provide them some cover.