Markets
Chart: The Downward Spiral in Interest Rates
During the onset of an economic crisis, national governments are thought to have two chief policy tools at their disposal:
- Fiscal Policy
How the central government collects money through taxation, and how it spends that money - Monetary Policy
How central banks choose to manage the supply of money and interest rates
Major fiscal policy changes can take time to be implemented — but since central banks can make moves unilaterally, monetary policy is often the first line of defense in settling markets.
As the ripple effect of the COVID-19 pandemic rages on, central banks have been quick to act in slashing interest rates. However, with rates already sitting at historic lows before the crisis, it is possible that banks may be forced to employ more unconventional and controversial techniques to try and calm the economy as time goes on.
The Fed: Firing at Will
The most meaningful rate cuts happened on March 3rd and March 15th after emergency meetings in the United States.
First, the Federal Open Market Committee (FOMC) cut the target rate from 1.5% to 1.0% — and then on Sunday (March 15th) the rate got chopped by an entire percentage point to rub up against the lower bound of zero.
As you can see on the chart, this puts us back into familiar territory: a policy environment analogous to that seen during the recovery from the financial crisis.
ZIRP or NIRP?
It’s been awhile, but with interest rates again bumping up against the lower bound, you’ll begin to see discussions pop up again about the effectiveness of zero interest rate policy (ZIRP) and even negative interest rate policy (NIRP).
Although the latter has been used by some European banks in recent years, NIRP has never been experimented with in the United States or Canada.
Here’s a quick primer on both:
With rates sitting at zero, it’s not impossible for the Fed and other central banks to begin toying more seriously with the idea of negative rates. Such a move would be bold, but also seen as highly experimental and risky with unforeseen consequences.
Global Rate Slashing
Since only the beginning of March, the world’s central banks have cut interest rates on 37 separate occasions.
The only exception to this rule was the National Bank of Kazakhstan, which raised its key rate by 2.75% to support its currency in light of current oil prices. Even so, the Kazakhstani tenge has lost roughly 15% of its value against the U.S. dollar since February.
Here’s a look at cumulative interest rate cuts by some of the world’s most important central banks, from January 1, 2020 until today:
Going into the year, rates in developed economies were already between 0% and 2%.
Despite not having much room to work with, banks have slashed rates where they can — and now out of major developed economies, Canada has the “highest” interest rate at just 0.75%.
Helicopters on the Horizon
With central banks running out of ammo for the use of traditional measures, the conversation is quickly shifting to unconventional measures such as “helicopter money” and NIRP.
Life is already surreal as societal measures to defend against the spread of COVID-19 unfold; pretty soon, monetary measures taken around the globe may seem just as bizarre.
Put another way, unless something changes fast and miraculously, we could be moving into an unprecedented monetary environment where up is down, and down is up. At that point, it’s anybody’s guess as to how things will shake out going forward.
Markets
Visualizing California’s GDP Compared to Countries
California’s GDP makes the state one of the most powerful economies in the world. This graphic compares it to the GDP of 10 select countries.

California’s GDP Compared to Countries
Comedian Trevor Noah once said America is fifty little countries masquerading as one.
From an economic sense, this might carry some truth. When looking at the economic output of each state, especially the largest and wealthiest ones, they often compare to or even exceed the GDPs of entire nations.
To illustrate, this visual from StatsPanda looks at California’s $3.36 trillion GDP using data from The World Bank and compares it to 10 sizable country economies. Let’s take a closer look.
Sizing Up California’s GDP in 2021
California’s $3+ trillion GDP is an enormous figure in its own right, so it’s no surprise that it is larger than certain nations’ economic output.
But even when comparing with economies like Malaysia, Colombia, and Finland, all among the top 50 countries by GDP, California stands tall.
Country | GDP (2021 USD) |
---|---|
🇲🇾 Malaysia | $372B |
🇭🇰 Hong Kong | $369B |
🇻🇳 Vietnam | $366B |
🇮🇷 Iran | $359B |
🇵🇰 Pakistan | $348B |
🇨🇱 Chile | $317B |
🇨🇴 Colombia | $314B |
🇫🇮 Finland | $297B |
🇷🇴 Romania | $284B |
🇨🇿 Czechia | $281B |
Total | $3,307B |
California | $3,357B |
What’s more, these 10 countries are quite densely populated, with a combined population of 653 million compared to California’s 39 million total.
A Closer Look At California’s Economy
What makes California’s GDP so vast and their economy so powerful?
Relative population is a big factor, as the state is the most populous in the U.S. with roughly 12% of the country’s population calling it home. But since California’s GDP makes up over 15% of the country’s economic output, there must be something else at work.
One key driver is the technology sector. Not only does Silicon Valley generate massive amounts of technological output, this also translates directly to wealth and economic activity. Many tech markets follow winner-take-all dynamics, bringing large revenues back to the state. In addition, smaller technology companies are frequently gobbled up by larger competitors, adding wealth back into the mix through M&A.
This might partly explain why California’s GDP is actually estimated to overtake Germany’s in the coming years and become the world’s 4th largest economy.
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