Sex and negative interest rates
Our company has indeed benefited a lot from lower interest rates; it has meant that new clients have come seeking higher yields. That is the Central Bank of Barbados’ intention: to move money to business activities preferably within the country.
However, it isn’t working at the macro level, and we know there are many deflationary pressures across the globe currently, namely demographic issues. I believe this is the greatest problem facing banks and, as a result, banks aren’t lending at the same pace. There is also the fear that banks face, where no bank wants to be the first lender and then the economy goes south. I think that is the problem central banks are trying to mitigate via negative interest rates or very low interest rates, but that has been of limited success thus far.
The title of the article is Sex And Negative Interest Rates but it could also be Demographics And Negative Interest Rates. I can imagine that some Japanese professor would have said in the 1980s and 1990s that his country’s demographic structure would be a problem and that Japan would have to do crazy things to stimulate the economy, and no one would have listened. Obviously, sex is a subset of the demographic issue, and our sexual activity isn’t leading to the same level of fertility rates.
In fact, many surveys in Japan and Europe are even indicating that adults are having less sex than previous generations.
Fast-forward a couple years to a much smaller island, and we are looking at the same problem. The worrying thing is that in all likelihood the Central Bank of Barbados can’t do much more to stimulate the economy; it has already removed the minimum savings deposit rate. It is also unlikely it would try negative interest rates as in Europe and Japan, since that would lead to other problems such as capital flight.
The Central Bank doesn’t have the luxury of thinking persons would now invest in various businesses to any significant level, owing once again to demographic reasons.
If you peruse the various real estate websites, you would see that many different persons are selling land, and I’m not referring to small plots here. I’m referring to huge plots of land. That indicates there are a few cracks in the economy; but then again whether we heed these warnings is another thing.
The price is still within normal range, which remains positive; and I hope I don’t start any panic here. That is never the intention of any of my articles. My intention is to highlight we have a problem here and that persons in the agriculture sector are leaving.
I would actually like to buy some of those plots via our investment firm and put things to good use. This isn’t a solicitation or offer, so hopefully our regulator has no problem with my using those exact words.
However, it is my genuine belief that the only way to avert the above highlighted structural issues is to dramatically increase productivity and invest in new businesses. Otherwise, we could find that the risk-averse baby boomers in the country who have saved up vast sums will find them worthless when they most need those sums.
(Craig Harewood is the investment director at OurinterestInc., an investment company that trades on global markets and from time to time assists small busnesses and boutique investors.)