The economy is like Jurassic Park: completely unpredictable.

Young Americans have started a movement called 'Fed Up ' because they are fed up with lack of employment among the young, writes Joseph Stiglitz, Nobel Laureate in Economics. Unemployment rate among 17-20 year old African-Americans is 50%. There is no sign of wage inflation because of the competition for jobs. " Low wages means high profits for jobs, and low interest rates mean high stock prices," he writes. Hence ".......the bulk of the increase in incomes since the US 'recovery' began going to the top 1% of earners, it is not true for most communities." The interest rate in the US has been 0.25% since 2008 but the inflation rate in one year to July 2015 was just 0.2%, well below the Federal Reserve target rate of 2%. African-Americans are 13% of the population and of the 17-20 year old will a small number so is Stiglitz recommending that the Fed should tailor its monetary policy for a tiny minority of the population, like the OBCs in India? He strongly recommends that interest rate must not be raised." The worry is that in a low-interest-rate environment, investors irrational 'search for yield' fuels financial-sector distortions. In a well functioning economy, one would have expected the low cost of capital to be the basis of healthy growth," he writes." Now is not the time to tighten credit and slow down the economy." But if near zero interest rate for 7 years and 3 rounds of quantitative easing have not increased investment or inflation why does the professor think that it is going to work now? Companies cannot be forced to start new businesses in a free economy. The dollar being a reserve currency it is easy to borrow in the US to invest abroad where labor is cheap, which is what they have been doing. Others say that unemployment rate is 5.1% and benefits claims are dropping, showing a tight labor market. A rise in rate has already been discounted, markets hate uncertainty and the interest rate has to go up sometime, so let it be done. The biggest danger of very low interest rate is that it encourages companies and individuals to borrow excessively which leads to dangerous bubbles. The dot-com bubble did not cause an economic crisis because debt was limited to technology companies. Studies show that the most dangerous bubbles are not due financial speculation but due to asset bubbles, based on excessive borrowing, and these take a long time to resolve. Central banks can only do little because policy is not in their hands. Even as the economy is uncertain the Republicans want to hold up the budget because they want to stop abortions. How stupid! That is why Donald Trump is thrashing all comers in opinion polls. In India there is an outcry for the RBI to reduce rates. NRIs sent $70 billion into India last year. That could fall if interest rate falls and that, coupled with FII sell off, could cause the rupee to plummet. The economy is like Jurassic Park. It does not follow rules.