In recent years it has often been assumed that one reason central banks cut rates is to force investors and companies to move funds from low-yielding assets, such as bonds or cash, into more productive investments that could produce better returns and growth.
But that economic theory is not playing out.
pay wall….gayyyyyy!!!
Another pernicious trait of ZIRP and NIRP is that by eliminating the alternative safe floor for yield, malinvestments in firms which should fail will persist. Positive rates force productive enterprises to perform or they can’t attract capital. NIRP and ZIRP exist only to keep overly indebted welfare states on life support beyond the tenure of the political class that currently rides the bomb a la Slim Pickens.
Central banks are desperate for growth and forcing money into higher risk equity investment is the result. Why/
Most world governments have factored GDP growth at 3.5 to 4% per year to balance their budgets. No matter the political leaning the creation of real wealth is the only way long term spending can be affordable.
Meanwhile ‘back at the ranch’ the demographic is most advanced economies do not support GDP growth at the levels required. Pensions both public and private are not solvent. When the younger generation wise up to this reality how long will they agree to carry the load. The Boomers will not collect what they think they are owed and they should not as they racked up the debt that is killing the goose.