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2016-09-10

The twisted logic of negative interest rates, John Kay

There is a theory behind the seeming madness in all this. Low interest rates encourage companies to invest and consumers to spend now rather than later ...

At any rate, this is not a theory that bears much scrutiny. It is not because interest rates are too high that eurozone consumption is sluggish but rather because expectations are so low. 

Fiscal austerity and the aftermath of the global crisis have dimmed the employment prospects of a generation of young Europeans. 

Low interest rates have as intended pushed up the prices of long-dated bonds and houses — but one unwelcome effect of this is to put buying a home beyond the reach of many and to render long-term saving more or less hopeless.

All told, the primary effect of monetary policy since 2008 has been to transfer wealth to those who already hold long-term assets — both real and financial — from those who now never will.

John Kay, Financial Times 9 September 2016

John Kay Excellent new book by Mervyn King, The End of Alchemy



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