The rock-bottom rates that persisted for a decade after the crash are not coming back
Even if we achieved both monetary and fiscal sustainability across the advanced world, my guess is that interest rates would fall only slightly.
Why? Because the global economic forces that pushed interest rates to rock-bottom levels for more than a decade after the global financial crisis have gone into reverse.
Rüdiger Dornbusch, who spent most of his career in the US, said:
“Crises take longer to arrive than you can possibly imagine, but when they do come, they happen faster than you can possibly imagine.”
This roughly captures the story of fiscal policy in advanced economies over the past two decades. After interest rates stayed low for much longer than anyone imagined, they normalised faster than anyone thought they could.
Boräntorna stiger
https://englundmacro.blogspot.com/2025/05/borantorna-stiger.html
For a time after the crash of 2008, and again during the pandemic, the real interest rate was not just less than the growth rate but actually negative.
Under such conditions, budget deficits and a falling ratio of debt to GDP can go hand in hand.
Unfortunately, the real interest rate is now back above 2%, which outstrips most estimates of future growth.
https://englundmacro.blogspot.com/2025/05/the-us-is-about-to-discover-if-deficits.html
Take the start of the rate-cutting cycle in 2007. The Dow Jones Industrial Average had its largest gain in more than four years, rising 336 points, the equivalent of about 1,000 points today.
Lehman Brothers shares were among the top performers, surging 10%.
We still don’t know how this movie ends
We’re not in Kansas any more.
https://englundmacro.blogspot.com/2024/09/we-still-dont-know-how-this-movie-ends.html
The 2008 Financial Crisis Explained
https://englundmacro.blogspot.com/2025/05/2008-and-all-that.html
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