when theres a flight to treasuries the initial effect is to raise corporate rates and lower treasury rates
if the fed steps in and reduces the treasury rates even lower
does it have enough above zero rate room to lower the corporate default risk premium enough to counter
both
the default risk premium increase
and
the knock on effect to the inflation premium
from the fed's monetary base increasing safe rate reducing reaction
just fooling around here of course
but the entire array of security rates on n private and m public issues plus f forex rates and e equity p/e ratios
makes for quite a bundle to aggregate into one hicksian rate eh ??
in fact there's prolly no rate of real return feasible in our system
even if we went to negative nominal rates that could induce corporaions the build new capacity or hire additional staff
lets call this formal I(r) the hicks effect
ie that so llong as we can push the real rate r low enough
we can induce all the I we need
that's like the venerable old escape hatch
called the pigou effect
if product prices fall low enough
the purchasing power of money ie the real balances will rise high enough to induce
as much more consumption as we need
a particularly absurd sub set of the wealth effect
