Still relevant...

Keynes predicted the euthanasia of the creditor or rentier of the capital because he thought that land and labour are scarce, but capital has no reason to be scarce, because the central-bank can print money to stoke demand/supply to achieve full-employment. In the developed-world the central-banks have pumped so much money in the system that has made money so cheap that pushed interest-rate rock-bottom (Japan, US, Europe). In these countries, capital is cheap and not scare, at all; interest rates are at zero-lower-bound. These economies are very close to that (Keynes’ concept of) euthanasia, when interest rates are almost zero. If we take Japan as an example which is reeling under recession for past two decades and interest-rate near zero, euthanasia of the creditor seems very plausible. In all the three economies interest-rate is near zero and they are also probably in the famous Keynesian liquidity trap in which people accumulate reserves, when nominal interest-rate is zero and cannot fall further and in the expectation of lower prices forth they delay purchases. Prices reflect scarcity and higher-prices reflect higher scarcity, even prices of labour (wages) and capital (interest-rate). During downturns both are not scarce as there is a cut down on investment and interest-rate (or increase in money-supply) and employment and wages (or increase in unemployment and labour-force). In an attempt to increase demand and growth, these banks failed to understand the importance of savings which is also a function of real interest-rate (nominal interest rate minus inflation). It has also led to capital-fight. Moreover, in another attempt to make economy competitive we have also cut-down on real-wages (nominal wages minus inflation). The continuous increase in money supply and inflation has kept real-interest-rate-and-wages and demand low. Moreover, slowing population growth rate has also affected demand negatively. The central-banks are trying to push the economy through money-supply which is supposed to increase spending and inflation, but this is even going to hurt demand by lowering real-interest-rate-and-wages and might not work in the liquidity-trap. Savings also do have a positive effect on demand through lower interest rate and higher investment. Moreover, inflation will also lower real-wages. These banks policies might have a negative effect on demand by increasing inflation. The Fed is trying to push prices up which is opposite of the argument that increase in real-wages will also increase demand, the Pigou-Effect. The effect is also helpful in the liquidity-trap by increasing real wages and demand. Growth-rate of the economy will increase. The Fed should try to release the repressed demand by increasing real-wages and stop inflation targeting and let the prices fall to increase demand. Lower interest rate, as they are, will help increasing investment. The interest rate in these countries might remain very low, probably zero, for an indefinite period of time (may be forever) because in these capital rich countries, capital is not scarce anymore... Japan is a good example...

Interest-rate depends upon the money-supply, the price level and expectation of changes in it, because of the price-stability objective of the monetary-policy or the central-banks. They manage money-supply to adjust interest-rate and demand/supply which jointly determines the price-level or inflation. But, interest-rate in turn is also determined by inflation and inflationary expectations, both short-run and long-run. Higher inflation and inflationary expectations also make the central-banks fine-tune money-supply and interest-rate. Normally central-banks job is to ensure price-stability, but when growth-rate is tumbling it might set higher-inflation-targets, because it is a sign of higher demand/supply and economic-activity. Generally, booms and high growth-rates coincide with higher prices and interest-rate. Nonetheless, busts and slow-downs in the economic-activity and growth-rate calls for lower interest-rates, but to cut interest-rates during down-turn it is important to tighten during higher inflation otherwise it would feed bubbles by increasing the gap between nominal and real prices of assets because of inflation. The fear that lose money-supply and interest-rate might create asset-price-bubbles in the US is baseless since inflation is too low. Moreover, the fear of risky investment because of too low rates is again overdone since banks lend only after assuring feasibility of the project. Nevertheless, low interest-rate on retirement-funds also depends on inflation and inflationary expectation, and, low interest-rate would also mean that inflation in future could remain low which means higher real-interest rates, and the argument that pension funds might lose because of low rates may also be overblown because it would also signal that inflation could remain low in the future so that less savings would be needed. With oil from the Shale-revolution, which had put the expansion of the US economy in shambles many times before. Lower oil-price expectations in the economy has kept inflationary expectations and interest rate low, which is likely to stay because the US is now a big oil producing country. Most of the prior recessions in the US economy were associated with oil-price booms and inflation. Lower oil-prices are a major contributor to low inflation and inflationary expectations after Shale. Higher oil-prices in the future would also make high-cost shale-exploration more viable, and, thereby more production and supply leading to further low oil prices, inflation expectations and interest-rate.

It is worth a thought that economic-models assume zero inflation in the long-run. Inflation is a short-run deviation from the equilibrium price-level. Economists think of the long-run as self-correcting. But when deciding long-run rates expected inflation plays an important role because the economy first consumes and then saves for the future; if they expect higher inflation based on the current situation they would also save more for the future too and more savings result in lower spending means lower demand and prices. Interest rate would go down. On the contrary, if they expect deflation based on the current condition they would save less-spend more which might increase demand and prices and interest rate. People expect higher interest rate if there is inflation because the monetary-policy would work to control inflation. Generally, prices and interest rate move in the same direction. Expected inflation would increase the long-run rates, higher than the short-run rates. The long-run rates are higher than the short –run rates which shows that depending on the economic –policy people expect inflation in the long-run which is opposite of what the economic models assume that inflation in the long-run would be lower or zero. Keynes long ago accepted that labour and other factors of production might not be abundant but capital has no reason to be scarce since the central bank can print money to finance the economy. Gold-Standard off-load was a big move in that direction which was later used to print notes, buy foreign exchange and devalue to gain exports. Keynes foresees capital as not scarce in the long-run. Our zero interest-rate regimes in much of the developed world do support Keynes view that capital is not necessarily scarce. Higher long-run interest rate is against Keynes argument of lower interest rate.