Yes, we can count on low or negative interest rates. (I am already paying negative interest on one of my accounts). Any increase in interest rates would see millions unable to service their mortgages, and no government can survive if people are losing their homes. It would also see the collapse of various ‘zombie companies’. So, we’re stuck with it, probably for many decades to come.
Seb Dakin
3 years ago
The big problem with real rates (inflation begin higher than nominal interest rates) being in permanently negative territory would be that people with access to credit could borrow, invest in assets that appreciated faster than inflation, or at least faster than interest rates, like houses. Just try to imagine the damage to a society of having a rentier class on one side, with workers unable to afford decent housing on the other. Oh…
Robin Taylor
3 years ago
A few points:
Risk may have declined over the decades but that does not mean it will continue to do so. Indeed, the extent of the economic damage the West has inflicted on itself during 2020 will significantly increase risk in coming years.
Banking may have “become more sophisticated” but, as we saw in 2007/8, that does not necessarily reduce risk. Indeed, it soon became evident that many people running the banks did not fully understand the complexity of the investment instruments they operated or the risks they posed.
The printing of money in the West, the worsening structural supply issues and the likelihood of VAT and other tax increases in coming months/years is likely to create significant inflationary pressures. In such circumstances, it will be hard to keep interest rates low.
Yes, we can count on low or negative interest rates. (I am already paying negative interest on one of my accounts). Any increase in interest rates would see millions unable to service their mortgages, and no government can survive if people are losing their homes. It would also see the collapse of various ‘zombie companies’. So, we’re stuck with it, probably for many decades to come.
The big problem with real rates (inflation begin higher than nominal interest rates) being in permanently negative territory would be that people with access to credit could borrow, invest in assets that appreciated faster than inflation, or at least faster than interest rates, like houses. Just try to imagine the damage to a society of having a rentier class on one side, with workers unable to afford decent housing on the other.
Oh…
A few points:
Risk may have declined over the decades but that does not mean it will continue to do so. Indeed, the extent of the economic damage the West has inflicted on itself during 2020 will significantly increase risk in coming years.
Banking may have “become more sophisticated” but, as we saw in 2007/8, that does not necessarily reduce risk. Indeed, it soon became evident that many people running the banks did not fully understand the complexity of the investment instruments they operated or the risks they posed.
The printing of money in the West, the worsening structural supply issues and the likelihood of VAT and other tax increases in coming months/years is likely to create significant inflationary pressures. In such circumstances, it will be hard to keep interest rates low.