The base rate in the UK has been stuck at 0.5% for years; in the US and Japan the equivalents are close to zero; even in abstemious Germany, the central bank is practically giving cash away. The Swiss and German governments are able to charge people to lend them money for up to ten years. UK mortgage rates for the safest borrowers are at all-time lows: both First Direct and Nationwide are offering ten-year fixes at 2.89%.
Easy money, right? Possibly not.
Saint Milton tells us that low nominal interest rates may tell us that monetary policy has been too tight, and high rates do not necessarily mean that money is too tight. So is money too easy or too tight? Are low interest rates storing up trouble or are we sacrificing growth because our monetary generals are fighting the last war?
Mark Carney and Mario Draghi say that Europe is on an even keel, but UK inflation is at a modern-era low. Carney says that the only way up, baby, for UK rates, but committee colleagues are not so sure. Keynesians are still calling for fiscal stimulus.
So how can we decide what to do?
In 1933 the US government started down the road towards the paper-money era, but it took until 1972 for the post-gold regime to be formalised. For nearly 20 years after that, western nations experimented with various regimes, some more successful than others. In Britain we suffered from micro-managed money-rationing, to wage-price regulation, from hyper-inflation, to economic breakdown; we "shadowed" the Mark, during a period of great divergence between our great nations, and we narrowly avoided joining the Euro. But since 1992 the UK has enjoyed ever more stable inflation and huge long-term reductions in interest rates, thanks to inflation-targetting by the Bank of England.
But with the rise of China and the others, suddenly inflation is not what it used to be. A boom in Britain does not cause a wage spike as it used to, because so much is imported. Even though GDP is rising at a heady clip, average wages are fairly stagnant. So the question remains: how do we know when we are booming or bust? Does inflation targetting do now what its inventors aimed for?
Enter "nominal GDP targetting". Nominal GDP is a measure of the total amount of spending in the economy. Experts seem to think that to avoid hyper-inflation and debt traps it ought to be kept to about 5% a year. In times of proper growth, inflation will fall as productivity soars; in less prosperous times, real growth will falter, and inflation will rise, but never too high to cause difficulties.
Mark Carney is keen on NGDP, and his views seem to be based on the UK's healthy but sustainable NGDP numbers. The US apparently does not enjoy such a healthy situation, and so money is too tight there. The eurozone needs to fire up the printing presses until they run hot.
Don't be surprised if the next UK government moves towards NGDP targetting, whoever wins the election.