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Europe, Italy, USA

When low rates beget lower rates (and more debt)

Stefano Fugazzi (ABC Economics) – Between December 2014 and May 2015, an average of $2 trillion in sovereign debt, much of it being issued within the Eurozone, was trading at negative yields.

Current interest rates (also known as “policy rates”) are lower than at the height of the 2008-09 crisis both in nominal and real terms.

Although policymakers have kept rates low for quite some time, general consensus is that they do not necessarily are at “equilibrium” (if they were they would be conducive to sustainable and balanced global growth) but, rather, they have contributed to fuelling costly and continuous financial booms and busts.

The outcome? Stated simply, too much debt, too little growth and excessively low interest rates. And low rates usually lead to even lower rates.

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Discussion

One thought on “When low rates beget lower rates (and more debt)

  1. too much debt = another bang but bigger

    Posted by Michael Cushing | July 30, 2015, 6:15 pm

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