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<ul class="summary-list"><li>Surging <keyword id="22195" type="COMPANY" weightage="60" keywordseo="Inflation">inflation</keyword> should cool in six months, former <keyword id="45672" type="ORGANIZATION" weightage="60" keywordseo="Fed">Fed</keyword> governor <keyword id="726051" type="PERSON" weightage="60" keywordseo="Randall-Kroszner">Randall Kroszner</keyword> said on Bloomberg TV.</li><li>Faster <keyword id="1780117" type="PERSON" weightage="60" keywordseo="price-growth">price growth</keyword> has mostly been driven by supply shortages and a rebound in travel spending.</li><li>Still, a jump in <keyword id="659974" type="PERSON" weightage="60" keywordseo="inflation-expectations">inflation expectations</keyword> could spark longer-term price growth, Kroszner said.</li></ul>Prices for everyday items are climbing at <a href="https://www.businessinsider.com/pce-inflation-june-supply-shortages-economic-data-price-growth-recovery-2021-7">the fastest rate since the financial crisis</a>. But, it's likely that Americans will only need to endure the inflation surge for a few more months, former <keyword id="6355253" type="UNKNOWN" weightage="60" keywordseo="federal-reserve">Federal Reserve</keyword> Governor Randall Kroszner said Thursday.Inflation has trended at decade-highs for months, fueled by a rebound in Americans' spending and a bevy of supply shortages. The leap in prices has prompted conservative-leaning economists to question whether inflation will naturally cool off as the Biden administration anticipates.Where the White House and the Fed have said they expect stronger inflation to be "transitory," Republicans argue the overshoot risks a 1970s-like inflation crisis in which prices keep spiraling out of control.Kroszner mostly agrees with the former over the latter. Faster price growth will cool off, but not immediately, Kroszner said in a <a href="https://www.bloomberg.com/news/videos/2021-08-05/inflation-pressures-to-last-about-six-months-kroszner-says-video">Bloomberg TV</a> interview. The cocktail of pent-up demand, stimulus-boosted savings, and one-off supply bottlenecks are all contributing to the inflation uptick. Those factors, while temporary, will take some time to fade, the University of Chicago economics professor said."I don't think they're necessarily going to be sustained over the year-to-two-year horizon. But over a six-month horizon? I think certainly," he added.The transitory inflation thesis is simple. Much of the recent surge came from goods and services directly affected by supply-chain disruptions and the nationwide easing of economic restrictions. Meanwhile, as the country emerged from lockdown, Americans spent big on leisure and travel. Those factors raised the prices of used cars, gasoline, restaurants, and hotels.And while consumer demand almost immediately recovered, supply chains struggled to catch up. Semiconductor shortages halted vehicle production and further boosted <a href="https://www.businessinsider.com/price-of-used-cars-record-increase-june-2021-7">used-car prices</a>. Soaring lumber costs lifted furniture inflation and contributed to <a href="https://www.businessinsider.com/america-housing-crisis-getting-worse-home-prices-apartment-rental-market-2021-8">record-high price growth for US housing</a>.The fact that supply shortages count for so much of the overshoot explains how inflation can ease into 2022. Producers were "not able to handle this big spike in demand we're seeing," Fed Chair <keyword id="1727754" type="PERSON" weightage="60" keywordseo="Jerome-Powell">Jerome Powell</keyword> said in a July 28 press conference. But the leap in inflation is "really a shock to the <keyword id="34412" type="ORGANIZATION" weightage="100" keywordseo="economy">economy</keyword> that will pass through" as the economy settles into a new normal, he added.<h2>Inflation expectations remain the key variable</h2>One factor, however, can still throw a wrench in the Fed's outlook. Should enough one-off price jumps accumulate, Americans could brace for stronger inflation to last. That would first show up in consumers' price growth expectations.Higher inflation expectations act as a sort of self-fulfilling prophecy. As Americans' expectations climb, businesses tend to lift prices. That then leads workers to ask for higher wages, which can spark a vicious cycle of persistently higher inflation.Powell indicated in July that inflation expectations "appear broadly consistent" with the Fed's price-growth target. Still, if moods change and Americans start worrying about faster price growth, the central bank's "transitory" forecast could go up in smoke."You can get into this cycle where inflation starts to take off and become more permanent," Kroszner said. "That's really the key: Can [the Fed] keep inflation expectations well anchored? We'll see."

Today's surging inflation will only last 6 months, former Fed governor says. Here's why.

<ul class="summary-list"><li>Randall Kroszner, a former <keyword id="6355253" type="UNKNOWN" weightage="60" keywordseo="federal-reserve">Federal Reserve</keyword> governor, said central banks won't cure COVID-19. </li><li>He told CNBC's Squawk Box: "They can't cure the virus, they can't unlock economies and they can't replace broken supply chains."</li><li>He predicted a number of companies will default, prompting a return to the debt forgiveness levels last seen in the 1930s. </li><li>He added that the <keyword id="45672" type="ORGANIZATION" weightage="60" keywordseo="Fed">Fed</keyword> may pursue negative <keyword id="6371181" type="UNKNOWN" weightage="60" keywordseo="interest-rates">interest rates</keyword> if they enter a "deflation situation." </li></ul>As central banks around the world continue to roll out measures to keep their economies afloat during the pandemic, former central banker Randall Kroszner says that "central banks can't cure the virus."Kroszner, who served as a Federal Reserve governor between 2006 and 2009, said in an <a href="https://www.cnbc.com/video/2020/06/05/central-banks-cant-cure-the-coronavirus-former-fed-governor-kroszner.html">interview on CNBC's Squawk Box</a> published Monday: "There is only so much central banks can do. As a central banker I am never going to say central banks are not powerful but they can't cure the virus, they can't unlock economies and they can't replace broken supply chains."The Fed has taken a number of unprecedented measures to shore up the <keyword id="34412" type="ORGANIZATION" weightage="60" keywordseo="economy">economy</keyword> during the pandemic. Read More: <a href="https://www.businessinsider.com/stock-market-crash-new-bull-run-historical-checklist-not-met-2020-6" target="_blank" rel="noopener noreferrer">Stocks have met none of the 8 conditions that confirmed every new bull market in the post-war era — and one investment chief warns a relapse into a bear market is coming</a>They include pursuing a $2.3 trillion economic-stimulus program and reducing interest rates to almost zero. "Central banks can provide a bridge to support a new equilibrium but it is going to be a while to get to the new equilibrium and it is not going to be easy," Kroszner said.<h2>Return to 1930s debt forgiveness program</h2>Kroszner said that the next phase of defeating the virus is likely to be increased <keyword id="426176" type="PERSON" weightage="60" keywordseo="infrastructure-spending">infrastructure spending</keyword>. "There is an opportunity for <keyword id="17408" type="PERSON" weightage="60" keywordseo="infrastructure">infrastructure</keyword> spending going forward and this is likely to be the next step in the responses in curing the virus both in the US and globally," he said.He expects a number of companies to default, driving debt forgiveness to levels last seen during the Great Depression in the 1930s. "You are going to see a significant rise in firms being unable to pay the debt," he said. "Even if some of those loans are forgiven, there is going to be a lot ot debt renegotiation, a lot of debt restructuring if you want to preserve many jobs and as many businesses as possible."He added: "I think having an expedited approach to that will be valuable. Going back to the 1930s, we did do a lot of debt forgiveness and there is going to be a lot of discussion on across-the-board debt forgiveness."Firms will be reluctant to invest in coming quarters and years, Kroszner continued.This particularly holds in the energy sector, where <a href="https://markets.businessinsider.com/index/dow_jones">oil</a> prices crashed in March. Prices have recovered since, but still have a long way to go until they reach their levels before the pandemic struck and <a href="https://www.businessinsider.com/author/saloni-sardana">Russia and Saudi Arabia kicked off a price war</a> in early March.But he thinks the tech industry wil continue to make investments. Read More: <a href="https://www.businessinsider.com/stock-picks-to-buy-11-companies-3-month-outperformance-ms-2020-6" target="_blank" rel="noopener noreferrer">MORGAN STANLEY: Buy these 11 stocks right now to reap the strongest possible market-beating returns over the next 3 months</a>"This is very different from 9-11 which was an enormous shock to people. We got the airline industry working again, we got people back on to airlines, people felt safe to go out. That is very different from now where people are still very wary.""Even if people are allowed to go out, they still may not consume," he added. <h2><keyword id="8090086" type="UNKNOWN" weightage="60" keywordseo="Negative-Rates">Negative rates</keyword> remain a possibility </h2>Kroszner also suggested the Fed could do little to spur a V-shaped recovery for the US economy, given its hesitation to cut interest rates below zero."I don't think there is that much the Fed can do to get a V-shaped recovery," he said. "The Fed really does not want to go negative, and they would really prefer not to.""The balance sheet has exploded far beyond when I was there a decade ago, they are trying to make sure they don't get into that situation," he added.Fed Chairman Jerome Powell so far has <a href="https://markets.businessinsider.com/news/stocks/negative-interest-rates-not-considered-federal-reserve-policy-jerome-powell-2020-5-1029198208?utm_source=markets&amp;utm_medium=ingestgest" target="_blank" rel="noopener">downplayed the prospect of negative rates,</a> but analysts have noted that what the Fed does will ultimately depend on how the US recovers from its current economic crisis. If the economy springs back quickly, negative rates are unlikely, but if there is longer turmoil, they become more possible.Kroszner said: "They are trying to avoid deflation, but if they get in a deflation situation they may have to reevaluate and consider negative interest rates."The Fed's key rate currently sits at 0.25%, with the <keyword id="6358156" type="ORGANIZATION" weightage="60" keywordseo="central-bank">central bank</keyword> announcing its next move on June 10.

'Central banks can't cure the virus,'  former Fed governor Kroszner says, and lays out the next steps policymakers may take to respond to the virus

<ul class="summary-list"><li>The deadline for the US to come to an agreement on the debt ceiling is looming. </li><li>A default on the national debt would result in economic catastrophe, but even uncertainty ahead of the deadline could trigger an economic downfall. </li></ul>As the negotiations to raise the debt ceiling intensify, experts have warned of economic disasters that will result should the US default on its debts.However, as the June 1 deadline nears, the anticipation itself could lead to economically disastrous consequences. And there is already precedent for this. In 2011, a similar debt ceiling battle occurred: then-House Speaker John Boehner rallied Republicans behind a spending outline that would <a href="https://www.reuters.com/article/us-usa-debt-timeline/timeline-how-the-debt-talks-spiraled-into-crisis-idUSTRE76N2KD20110724" target="_blank" rel="noopener">tie a debt-ceiling raise to spending cuts in labor, health, and education programs.</a> After months of heated disagreement, a compromise was reached by lawmakers to raise the debt ceiling and implement spending cuts. A total catastrophe had been avoided, but the back-and-forth still rattled the economy. <a href="https://home.treasury.gov/system/files/276/POTENTIAL-MACROECONOMIC-IMPACT-OF-DEBT-CEILING-BRINKMANSHIP.pdf" target="_blank" rel="noopener">According to a 2013 analysis by the US Department of Treasury</a>, the prospect of a debt default resulted in a steep drop in stock prices as well as consumer confidence. Household wealth fell by $2.4 million that year, and taxpayers were forced to take on higher interest payments. Standard &amp; Poor's <a href="https://www.reuters.com/article/us-usa-sp-downgrade-text/sp-lowers-united-states-credit-rating-to-aa-idUSTRE7750D320110806" target="_blank" rel="noopener">also docked the US's sovereign credit rating</a> after the debt-ceiling deal was made, citing the negotiations as a sign that US "governance and policymaking" had become "less stable, less effective, and less predictable." This also affected stock prices.A similar situation could play out in the lead-up to the "X-date" — or the default deadline — experts told <a href="https://www.nytimes.com/2023/05/20/business/economy/debt-limit-default-economy.html" target="_blank" rel="noopener">The New York Times</a>. Randall S. Kroszner, a University of Chicago economist, told the Times, however, that economic pressures could play out differently in 2023 than they did in 2011 when the <a href="https://markets.businessinsider.com/news/stocks/pacwest-western-alliance-stock-regional-bank-crash-jpmorgan-jamie-dimon-2023-5?_gl=1*1p9twf7*_ga*MTgyNTUxNzM3Ny4xNjc0OTU1ODA5*_ga_E21CV80ZCZ*MTY4NDY0OTM2NS4xOC4xLjE2ODQ2NDk4NDEuMTMuMC4w">economy stood on more solid ground.</a>"2011 was a very different situation — we were in recovery mode from the global financial crisis," Kroszner told the Times. "In the current situation, where there's a lot of fragility in the banking system, you're taking more of a risk. You're piling up fragility on fragility."The most obvious result of financial chaos: Economic pressures could result in a surge in interest rates that drive up monthly payments on everything from student loans to credit cards. However, experts told the Times that this is not happening yet, at least. In late April, House Republicans passed Speaker Kevin McCarthy's bill, the Limit, Grow, Save Act of 2023, which would raise the debt ceiling by $1.5 trillion while implementing $4.5 in spending cuts on programs like <a href="https://www.businessinsider.com/ban-student-loan-forgiveness-end-payment-pause-debt-ceiling-bill-2023-4">student loan forgiveness.</a>Earlier this month, <a href="https://www.businessinsider.com/will-there-be-a-recession-debt-ceiling-increase-job-losses-2023-3">a report from Moody's Analytics</a> found that Republicans' proposed spending cuts could trigger "a recession in 2024, costing the economy 2.6 million jobs at the worst of the downturn and pushing unemployment to a peak of near 6%."And, like in 2011, Republicans and Democrats <a href="https://www.reuters.com/world/us/washington-quiet-debt-ceiling-deadline-inches-closer-2023-05-20/" target="_blank" rel="noopener">are at an intense standstill</a> about raising the debt ceiling — with the US's ability to borrow money to pay its current legal obligations (read: not new spending) again tied by the GOP to cuts to new spending.

As debt ceiling negotiations go down to the wire, an economic disaster looms that could affect everything from student loans to mortgage payments

1. <a href="https://markets.businessinsider.com/news/stocks/france-plans-aerospace-industry-rescue-package-worth-billions-euros-2020-6-1029287870">France is set to bail out its ailing aerospace industry with a rescue package worth billions of euros.</a> In an effort to help its depressed aerospace sector, France is reportedly preparing to unveil an economic rescue package worth billions of euros on Tuesday.2. '<a href="https://markets.businessinsider.com/news/stocks/central-banks-cant-cure-covid-19-former-fed-governor-kroszner-2020-6-1029288199">Central banks can't cure the virus,' former Fed governor Kroszner says, and lays out the next steps policymakers may take to respond to the virus. </a>As central banks around the world continue to roll out measures to keep their economies afloat during the pandemic, former central banker Randall Kroszner says that "central banks can't cure the virus."3. <a href="https://www.businessinsider.com/futures-rise-on-optimism-over-economic-revival-2020-6">Futures rise on optimism over economic revival.</a> U.S. stock index futures rose on Monday as a surprisingly upbeat jobs report last week added to optimism that the world's biggest economy has weathered the worst fallout of the coronavirus outbreak.4. <a href="https://www.businessinsider.com/morgan-stanley-flags-risk-oil-price-rally-will-lead-to-a-fall-2020-6">Morgan Stanley flags risk oil price rally will lead to a fall.</a> Oil prices have quickly climbed to levels that raise the risk of price falls as demand is fragile, Morgan Stanley said on Monday, as benchmark crude hit its highest in three months.5. <a href="https://www.businessinsider.com/us-feds-main-street-lending-facility-likely-to-start-with-a-whimper-2020-6">U.S. Fed's Main Street lending facility likely to start with a whimper.</a> The Federal Reserve's most ambitious and complicated crisis relief program is set to launch in coming days but it is far from certain that the small and mid-sized businesses the $600 billion "Main Street Lending Facility" is meant to help will come clamoring for loans.6. <a href="https://www.businessinsider.com/pge-expects-to-raise-575-billion-from-public-offerings-to-fund-bankruptcy-exit-2020-6">PG&amp;E expects to raise $5.75 billion from public offerings to fund bankruptcy exit.</a> Power provider PG&amp;E Corp said on Monday it plans to raise $5.75 billion from public offerings to partially fund its emergence from Chapter 11 bankruptcy.7. <a href="https://www.businessinsider.com/scientists-funded-by-mark-zuckerberg-condemn-inaction-on-trump-remark-2020-6">140 top scientists who are funded by Mark Zuckerberg are criticizing Facebook for letting Trump 'spread misinformation'.</a> More than 140 scientists doing research funded by Mark Zuckerberg, and his wife, Priscilla Chan, have said Facebook should not allow President Donald Trump to use the platform to "spread both misinformation and incendiary statements."8. Stocks are mixed. In Asia, the Nikkei 225 is up 1.4%, the Shanghai Composite is up 0.24% and the Hang Seng is flat. In Europe, the DAX is down 0.1%, the Euro Stoxx 50 is down 0.3% and the FTSE 100 is up 0.1%. In the US, futures underlying the Dow Jones Industrial Average, the S&amp;P 500 and the Nasdaq 100 are pointing to an increase between 0.1 and 0.8%. 9. <a href="https://markets.businessinsider.com/earnings-calendar">First quarter earnings coming in</a>. Coupa Inc Software Register and BBVA Banco Frances are due. 10. <a href="https://markets.businessinsider.com/earnings-calendar">Economic data releases today.</a> Chile Trade Balance and Canada Housing Starts are due.

10 things you need to know before the opening bell

<div class="KonaFilter image-container display-table float_right"><div><div class="image on-image">Justin Sullivan/GettyEllen Pao's account of her influential Silicon Valley discrimination case is among the best business books of the year.</div></div></div>Some of the biggest ongoing business stories of our time, from the personal and political effects of increased globalization to the confrontation of ingrained sexism in Silicon Valley, are reflected in this year's <a href="https://www.ft.com/content/54c2bc9c-9d27-11e7-9a86-4d5a475ba4c5">list of best business books from McKinsey and the Financial Times</a>.Since 2005, <a href="https://ig.ft.com/sites/business-book-award">McKinsey and FT have assembled an annual panel of experts</a> to select the most insightful and well-written books in the genre.This year's panel includes FT editor Lionel Barber, Mozilla chairwoman Mitchell Baker, Allianz chief economic adviser <a href="http://www.businessinsider.com/mohamed-a-el-erian-business-insider-interview-2016-4">Mohamed El-Erian</a>, London Business School professor Herminia Ibarra, McKinsey director of publishing Rik Kirkland, University of Chicago Booth School of Business professor Randall Kroszner, economist Dambisa Moyo, and Santander chairwoman Shriti Vadera.The panel chose 15 finalists earlier this year, narrowed it down to six semifinalists on Tuesday, and will announce the winner in November.When she announced the semifinalists, McKinsey's UK and Ireland managing partner Vivian Hunt said the selections, "really capture the extent of the economic and social disruption we face today, and highlight the big global challenges governments, business and society need to confront."Here are the six books in the running for best business book of 2017.

The 6 best business books of 2017, according to economists, editors, and professors

The Fed's 2008 FOMC transcripts are out along with accompanying presentation materials.
Most will remember September 2008, which was when the credit crisis got really ugly as Lehman Brothers went bankrupt and interest rates surged.
You would think that would've been good time for the Fed to cut rates. But it didn't. It <a href="http://www.federalreserve.gov/newsevents/press/monetary/20080916a.htm">kept its benchmark interest rate at 2%</a>.
For that September 16 meeting, the Fed had prepared three drafts for three scenarios including a rate hike.
<div class="KonaFilter image-container"><div class="image">Federal Reserve</div></div>
Here's what they ultimately went with:
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.
Strains in financial markets have increased significantly and labor markets have weakened further. Economic growth appears to have slowed recently, partly reflecting a softening of household spending. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.
Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.
The downside risks to growth and the upside risks to inflation are both of significant concern to the Committee. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Ms. Cumming voted as the alternate for Timothy F. Geithner.

Here Are 3 FOMC Statement Drafts From The Middle Of The Financial Crisis When The Fed Didn't Cut Rates

<div class="KonaFilter image-container display-table"><div><div class="image on-image">Darren Hauck/Getty ImagesJanesville, Wisconsin residents waved off General Motors employees leaving their closed factory for the final time in 2008.</div></div></div><ul><li>Amy Goldstein's "Janesville" was awarded the Financial Times and McKinsey's title of Business Book of the Year.</li><li>It is an intimate look at Speaker of the House Paul Ryan's Wisconsin hometown, which was ravaged by the Great Recession.</li><li>Goldstein's reporting showed that even the most driven residents have struggled for work, and that job retraining classes did not increase graduates' chance of employment.</li></ul> In the lead up to and aftermath of the election of President Donald Trump, a flood of reporters from big cities traveled to central and southern states to speak to so-called "Real Americans" to get help understanding how so many people had totally underestimated Trump's ascension.While some great reporting came out of those trips, there were also stories that seemed to treat these citizens like zoo animals, to be observed and analyzed.Amy Goldstein's "<a href="https://www.amazon.com/Janesville-American-Story-Amy-Goldstein/dp/1501102265">Janesville</a>" did not take such an approach, and that's part of the reason why it won the Financial Times and McKinsey's award for <a href="https://www.ft.com/content/b589f6c0-c311-11e7-b2bb-322b2cb39656">Business Book of the Year</a>. The title was awarded by a panel that included FT editor Lionel Barber, Mozilla chairwoman Mitchell Baker, Allianz chief economic adviser <a href="http://www.businessinsider.com/mohamed-a-el-erian-business-insider-interview-2016-4">Mohamed El-Erian</a>, London Business School professor Herminia Ibarra, McKinsey director of publishing Rik Kirkland, University of Chicago Booth School of Business professor Randall Kroszner, economist Dambisa Moyo, and Santander chairwoman Shriti Vadera.Goldstein is a veteran, Pulitzer Prize-winning Washington Post reporter who covered the social impact of the Great Recession. When General Motors shut down its manufacturing plant in Janesville, Wisconsin - Speaker of the House Paul Ryan's hometown - Goldstein took notice of the struggling town, which would also lose the Parker Pen manufacturing plant.She arrived in 2011 and spent the next several years building relationships. The story she emerged with was published in 2017 at a time when many Americans were looking for an explanation for what was happening with their country. Some lessons from her experience went against conventional wisdom.<h2>Job retraining is not a quick, simple fix to unemployment</h2>During the recession, both President Barack Obama and Ryan agreed across party lines that technical colleges could provide a path out of unemployment. Even today, it's a mainstream, bipartisan position to say that "closing the skills gap" through specialized, job-specific training is a way to deal with jobs that have either gone outside the country or will soon be replaced by automation.But even though Janesville is a single Wisconsin town and can't represent the entirety of the country, Goldstein found that skills-based training is not a simple fix at all, and may even be a worse option for some people, since it both delays a job search and potentially pigeonholes graduates into a job that may not be available by the time they finish school.Goldstein spent time with the Blackhawk Technical College in Janesville and compiled data with the help of the economists Kevin Hollenbeck and Laura Dresser. "The findings were surprising: Job retraining, it turned out, was not a path to more work or better pay in and around Janesville, at least not during this time when jobs were so scarce."<a href="https://www.c-span.org/video/?427443-1/amy-goldstein-discusses-janesville&amp;start=300">In a speech about her book</a> at Janesville's public library earlier this year, Goldstein made it clear that she was not denigrating Blackhawk, which she noted had done excellent work for more than a century and was effective at sufficiently training students for specific jobs. The problem is simply that in desperate times, studying for a specific job is far from a guarantee that the job will be available in your area after two years of learning how to do it.<h2>Those who recently fell out of the middle class are struggling emotionally and physically, as well as financially</h2>In a 2013 survey of 2,000 residents of Rock County, in which Janesville lies, the majority of people who either lost a job or had a member of the household who did reported signs of impaired mental and physical health.Sixty-three percent reported cutting back on doctor's visits and medical treatment, while also reporting regular lack of sleep and an increase in anxiety and anger in addition to strained family relationships.The suicide rate across the county doubled during the time Goldstein did her research.Goldstein found that many Janesville residents were going to extreme measures to make up for their lost $28 hourly wage from the GM plant. One of the men she followed has spent the last few years working five days a week at a union-guaranteed GM job in Indiana, sleeping hundreds of miles away from his family in a small apartment.She saw throughout Janesville that those who have recently fallen out of the middle class have struggled much more than those who had always been poor, largely because of a lack of a safety net.<h2>Believing in the American Dream isn't a solution</h2>During her speech in Janesville, Goldstein remarked on the spirit of the town's citizens, and their overwhelming desire to do whatever it takes to recover.But after reading "Janesville," it becomes obvious that no amount of can-do spirit is going to bring things back to the way we were. Some new distribution center jobs and workers' willingness to travel hundreds of miles for work has helped lower the unemployment rate to a healthy 4%. But in that same time, real wages have halved, and now in some families, one member may have to live in another state most of the week in order to find work.There is no simple solution to help communities that remain ravaged by the recession and the disappearance of factory jobs; no way to guarantee that hard work will bring success.As McKinsey's global managing partner Dominic Barton said after Goldstein won his company's award: "'Janesville' is a deeply reported story that raises critical questions about the impact of economic disruption on communities, without offering simplistic answers. It is an American story, as the subtitle suggests, but also a truly global one." <div class="margin-top"> <h3>NOW WATCH: <a href="http://www.businessinsider.com/linkedin-reid-hoffman-on-facebooks-mark-zuckerbergs-growth-2017-11">LinkedIn's founder explains how Mark Zuckerberg transformed from an awkward kid to one of tech's best CEOs</a></h3> <div> </div> </div>

3 lessons about the future of America from 'Janesville,' the book economists, journalists, and professors say is the best of the year

<div></div><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image">Amr Dalsh/ReutersThe Great Pyramid has never seen lower interest rates in its lifetime. (Well, it's only 4,500 years old, but what's 500 years?)</div></div></div>Earlier this month, the Bank of England did something never before seen in its 322-year history. It cut its key interest rate to just 0.25%.A few years ago, this might have been remarkable. It means banks in the UK can borrow money from the central bank for next to nothing.But in 2016, a "historic low" for interest rates is a superlative repeated so often that it doesn't get much notice anymore.In fact, if the UK's central bank cuts its benchmark interest rate again - to 0% - it will only be catching up to its major counterparts.Policymakers in the US, Japan, and Europe have already cut rates to or below 0%, and collectively this means that something is happening that has never before been seen in at least <a href="http://www.businessinsider.com/chart-5000-years-of-interest-rates-history-2016-6">5,000 years</a> of recorded history. In fact, some central banks are paying other banks to borrow money.They're doing this to spur economic growth. The problem is it's not clear that it is working while falling rates are creating new risks for investors around the world. And raising them, as the US Federal Reserve is trying to do, will create a whole host of new problems for investors and businesses that have to be weaned off such a unique setup.<h2>So why have we gotten this far?</h2>The decision to lower interest rates isn't itself a particularly revolutionary idea. Policymakers like the US Federal Reserve raise and lower rates as a way to either slow or stimulate the economy.The basic premise of a rate cut is that it affects the financial system by resulting in lower rates <a href="http://www.businessinsider.com/us-economy-is-cooling-off-2016-5">at banks and other consumer-lending institutions</a>. Lower interest rates make it cheaper and more appealing for people and businesses to borrow. They also incentivize people and companies to lend, or invest money because parking it in the bank is pointless.So businesses build factories and hire workers for those factories (who in turn go out and spend their new wages), people buy homes that need to be built and paid for - and all of this lifts the economy out of a funk.In December 2008, Ben Bernanke, then chairman of the Federal Reserve, faced the worst economic downturn since the Great Depression and decided that the best response to the crisis was to adopt the unprecedented 0% Federal Funds rate.<div class="KonaFilter image-container display-table"><div><div class="image on-image">Business Insider/Andy Kiersz</div></div></div>"The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability," the Fed said in its historic statement. "In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.""Some time" turned out to be seven years, as the Fed and current Chair Janet Yellen increased rates off of 0% in December 2015. Even with the hike, the Fed rate is higher by just one-quarter of 1% and is likely to remain under 1% for some time.So how's it working out so far?<h2>Everyday people: America leads the way</h2>The biggest target for stimulus is everyday people. Get people back in their jobs and they spend money and create wealth and drive the global economy forward.Most data point to the fact that the average person is, in fact, doing better off than when the great experiment of low rates began.<a href="http://blog.euromonitor.com/2015/12/improved-consumer-spending-growth-in-2016-but-opportunities-will-become-harder-to-capture.html">According to Euromonitor</a>, the global growth rate for both consumer expenditures and disposable income has rebounded from their troughs in 2009 to around 3% for each.Looking at it closely, however, and it really depends on who you're talking about.The labor market has responded as well as could be expected. The unemployment rate has fallen under 5%, the number of job openings is <a href="http://www.businessinsider.com/job-openings-and-labor-turnover-survey-june-2015-2016-8">near record levels</a>, and wage growth (while admittedly still lower than hoped) is <a href="http://www.businessinsider.com/average-hourly-earnings-growth-july-2016-2016-8">picking up</a>. So based on a myriad of labor-market indicators there would appear to show a strong bounce back.For many consumers the low interest rates have been a boon. The number of <a href="http://www.businessinsider.com/us-auto-industry-set-new-sales-record-2016-1">new cars bought in 2015</a> was the highest on record, at least in part because of the affordability of financing from low interest rates. Mortgages rates are <a href="http://www.businessinsider.com/ap-average-us-30-year-mortgage-rate-declines-to-343-percent-2016-8">also near an all-time low</a>, making it so affordable to get a home that <a href="http://www.businessinsider.com/everything-wrong-with-housing-market-in-one-chart-2016-4">supply can't keep up with demand.</a><a href="http://www.businessinsider.com/13-trillion-us-consumer-getting-bigger-2016-7">Consumption by Americans</a> has been one of the <a href="http://www.businessinsider.com/us-gdp-shows-the-consumer-is-winning-2016-7">strongest economic stories of all</a>, and has returned to prerecession levels. In these respects, the low interest rates have done exactly what they were designed to do.However, the picture is not as rosy for many economies outside of the US.Eurozone unemployment has <a href="http://ec.europa.eu/eurostat/statistics-explained/index.php/File:Unemployed_persons,_in_millions,_seasonally_adjusted,_EU-28_and_EA-19,_January_2000_-_June_2016_.png">stayed well above its precrisis low</a>, and in Japan, the country's nominal GDP is just now returning to its average from before the crisis.Another clue that the economy isn't firing on all cylinders: In America, price growth has remained steadily <a href="http://www.businessinsider.com/biggest-economic-story-of-2016-inflation-2015-12">under the Fed's target of 2%</a>. In both <a href="http://www.businessinsider.com/eurozone-inflation-data-may-2016-6">Europe</a> and <a href="http://www.businessinsider.com/deflation-is-back-in-japan-and-its-only-getting-stronger-2016-6">Japan</a>, prices have actually decreased.<div class="KonaFilter image-container display-table"><div><div class="image on-image">Joshua Roberts/ReutersFederal Reserve Chair Janet Yellen.</div></div></div>Rising inflation means that cash becomes less valuable over time, which means that people are <a href="http://www.bbc.com/news/business-30778491">incentivized to spend rather than just save</a> and allows companies to charge more and grow profits.And although profits of companies in the US, <a href="http://www.tradingeconomics.com/japan/corporate-profits">Japan</a>, <a href="http://www.tradingeconomics.com/germany/corporate-profits">Germany</a>, and <a href="http://www.tradingeconomics.com/united-kingdom/corporate-profits">the UK </a> initially rose to post-crisis highs - many businesses are still not investing in large, long-term projects. Investment by US companies is now declining on a year-over-year basis - which is a clue that executives are worried about the future.Businesses are more likely to spend on large-scale equipment if they believe economic growth will be stronger in the future. Since that doesn't appear to be the case with low GDP growth, investment doesn't look as attractive.Additionally, the current decline may also be because businesses are anticipating the end of a business cycle or the impact of energy prices, but the promise of huge investments by businesses <a href="http://www.businessinsider.com/capex-stagnant-2015-12">never quite panned out</a>.Moreover, while these firms have done little to invest in long-term projects, debt at these corporations has exploded. For example, debt held by the 500 largest corporations in the US hit an all-time record of <a href="http://www.businessinsider.com/companies-masking-66-trillion-of-debt-2016-5">$6.6 trillion at the end of 2015.</a>For now this isn't necessarily a problem because the cost of paying the debt remains low. But when the cost of paying the debt rises and access to credit becomes more difficult, it is unclear how the corporate sector would deal with it, especially as profits decline.So while the low interest rates have helped the corporate sector so far, it may come back to bite it down the line.<h2>Financial markets: distorted records</h2>Perhaps the most complete picture of the odd outcomes associated with historically low interest rates has come in financial markets.Government bonds, once thought of as the safe haven where investors could accumulate income from yield payments, have seen their yields hit all-time lows in recent months. This has ignited what has been called the "hunt for yield" throughout world markets. Since government bonds were once a dependable source of steady income for investors, these same people have to go out and find something to replace the returns they were receiving in the government-debt markets.Thus, demand for riskier bonds has boomed and <a href="http://www.businessinsider.com/tourist-investors-warping-market-2016-5">investors are shifting to nontraditional assets</a> to make up the lost yield and keep up with their investment goals.Additionally, this has gotten foreign investors into US stocks and may be one of the reasons that indexes have hit all-time highs. The combination of record highs in stocks and record lows in bond yields is also, much like interest rates, unprecedented.<h2>It can go wrong</h2>In a worst-case scenario, the US and other countries that have recently launched on their ultra-low interest-rate campaign could be stuck there for some time.The classic example of low-interest-rate trap is Japan. The country implemented 0% interest rates for the first time almost 20 years ago, and has recently begun to move their interest rate into negative territory.Despite this seemingly stimulative monetary policy, Japan has seen lackluster economic growth and a slowdown in a slew of economic indicators.<div class="KonaFilter image-container display-table"><div><div class="image on-image"><a href="http://pictures.reuters.com/C.aspx?VP3=SearchResult&amp;VBID=2C0FCIXYJ8GDL&amp;SMLS=1&amp;RW=1279&amp;RH=850#/SearchResult&amp;VBID=2C0FCIXYJ8GDL&amp;SMLS=1&amp;RW=1279&amp;RH=850&amp;PN=4&amp;POPUPPN=232&amp;POPUPIID=2C0408WUYFYFY">Reuters/Yuya Shino</a>Bank of Japan (BOJ) Governor Haruhiko Kuroda during a news conference at the BOJ headquarters in Tokyo.</div></div></div>Charles Bean, Christian Broda, Takatoshi Ito, and Randall Kroszner of the Centre for Economic Policy Research <a href="http://voxeu.org/sites/default/files/file/Geneva17_28sept.pdf">examined the history and impact of low interest rates</a> through the prism of Japan and found that there can be a "trap" of low rates.The researchers said the history of Japan is a warning for maintaining such low rates for too long. Here are the researchers (emphasis added):"Were these conditions to persist, they would pose special challenges for individuals and policymakers alike. Central banks would find their ability to vary policy rates would be constrained more often by the lower bound, forcing them to rely instead on less reliable instruments such as quantitative easing ... Moreover, an environment of persistently low interest rates is apt to increase the risks to financial stability by encouraging higher leverage and the adoption of excessively risky investment strategies. Prudential policies may be able to mitigate these risks, but we should be wary of expecting too much from relatively untested and potentially controversial policies."Essentially, in a worst-case scenario, a country ends up with too much debt, an inability to raise rates without causing destabilization, and consistent deflation eroding the value of assets.<h2>The story isn't over yet</h2>When you upend 5,000 years of economics history, it's bound to take some time to figure out the impact of the change.Negative interest rates are barely a year old and the 0% interest-rate policy of the Fed hasn't undergone the test of another recession. Economic growth is still subdued and we aren't sure when central banks in Europe, the UK, or Japan will eventually raise rates again.The most honest grade to give these massive experiments is probably incomplete.Will the record levels of debt become an issue when interest rates finally do rise? Will the lack of monetary "firepower" leave central banks with no room to ease when the next downturn comes? What happens if a large swath of negative yielding bonds end up coming to maturity? Will higher wages in the US eventually lead to increased inflationary pressures?To be honest, no one knows, because, as they say, the best thing to predict the future is data from the past. This time around, however, there is no road map.

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