Larry Summers is a pretentious Keynesian fool, but I refer to him as the Great Thinker’s Vicar on Earth for a reason. To wit, every time the latest experiment in Keynesian intervention fails——as 84 months of ZIRP and massive QE clearly have—–he can be counted on to trot out a new angle on why still another interventionist experiment or state sponsored financial fraud is just the ticket.

Right now he is leading the charge for the greatest stroke of foolishness yet conceived. Namely, negative interest rates based on the rubbish theory that the “natural” money market rate of interest is at an extraordinarily low point. Accordingly, the central bank should drive the “policy rate” to sub-zero levels in order to achieve the appropriate level of “accommodation” in an economy that refuses to attain “escape velocity”.

As can’t be pointed out often enough, however, there is no such economic ether as “accommodation”. It’s just a blanket cover story for what Keynesian central bankers believe they are accomplishing by pegging interest rates below market clearing levels and by bending and mangling the yield curve to cause more investment.

But after 86 months it is evident that all of this putative monetary “accommodation” has failed. Falsifying the cost of money and capital can only work if it causes households and businesses to borrow more than they would otherwise; and to then lay credit based spending for consumption and investment goods on top of what can be funded out of current production and income. Another name for that is leveraging private balance sheets and thereby stealing production and income from the future.

With $62 trillion of public and private debt outstanding the US economy has hit a economic barrier called Peak Debt. For all practical purposes, it can be measured as the macro- economy’s aggregate leverage ratio at 3.5X national income. That represents fully two turns of extra debt on the economy relative to the stable 1.50X ratio that prevailed during periods of war and peace and boom and bust during the century before 1970.

Stated differently, the Fed and other central banks have led the world economy into a planetary LBO over the last two decades or so. In the case of the US, the two extra turns of debt resulting from that rolling LBO amount to about $35 trillion.

Yes, that’s a load of anti-growth ballast that explains why there has been no “escape velocity”, and why the rate of real final sales growth since Q4 2007 is only 1.2% compared to peak-to-peak historical rates of 2.5% to 3.5%. And I use peak-to-peak advisedly because it is now clear after the recently released December business sales and inventory numbers that we are on the verge of a recession, if not already in one.

Yet the Vicar and his compatriots in the Eccles Building and on Wall Street insist on pushing harder on the credit string——even though Peak Debt means that household debt is still $400 billion below its pre- crisis peak and that the entire $2 trillion gain in business debt has been recycled back into the Wall Street casino via stock buybacks and mindless M&A deals. Real net investment in business plant, equipment and technology, in fact, is actually still below its 2007 peak, and even the level which had been attained at the turn of the century.

So that brings us to the harebrained theory of negative interest rates and the supposed collapse of the natural rate of interest in the money market. The latter is just unadulterated economic voodoo. It makes Art Laffer’s magic napkin look like a model of scientific formulation by comparison.

The truth is, there is only one “natural rate” of interest, and that’s the one produced in an honest financial marketplace via the interaction of savers and borrowers. No such rate now exists and hasn’t for decades owing to the massive intrusion of the Fed in the money market. Indeed, as a purely physical matter, even the so-called Federal funds market no longer exists because the Fed has asphyxiated it under a flood of $3.5 trillion of bond-buying and the resulting giant surplus of bank deposits.

So Summers is apparently speaking for the kid who killed his parent and then threw himself on the mercy of the courts on the grounds that he was an orphan. Interest rate pegging and the Fed’s wealth effects doctrine have failed completely, but now Keynesians like Summers claim the contra-factual.