Absolute Zero

In physical chemistry, everyday principles seem to be suspended as temperatures approach zero degrees Kelvin. It seems that as interest rates approach zero, the normal laws of finance get suspended as well.

When temperatures approach absolute zero gas volumes contract to a theoretical singularity, electrical components experience superconductivity, and perfect crystals can form. When interest rates approach zero banks no longer have any incentive to hold excess reserves at the Fed, there will be more and more transactional failures, and interest rates can no longer be lowered to stimulate demand.

All through the 90s Japan had a zero interest rate policy coupled with aggressive fiscal stimulus. We’ve called that period in Japan’s history, “The Lost Decade.” Let’s hope we’re not headed down that dismal road.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By |2014-09-04T17:04:11+00:00December 18th, 2008|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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