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What Is the Point of Profits in a Negative-Real-Junk-Bond Rate World?
- RC_ITR 5y agoWorth noting that the chart at the beginning of the article is out of date. Prices on that index fell c. 25% (makes the bubble point seem less worrisome if the author didn’t even notice that the decline is already well underway)
- imtringued 5y agoYawn, this is what happens when you let people save an infinite quantity of money without having any borrowers for that money. http://neir.de/en/natural-equilibrium.html http://neir.de/en/natural-equilibrium.html Super long EDIT: Interest rates above the natural equilibrium encourage excess deposits that cannot find any credit demand. Central banks are artificially holding interest rates above the equilibrium rate via the zero lower bound leading to exponential growth in deposits that cannot find borrowers. This happens not only with interest rates near the zero bound. It also happens when you raise interest rates from 2% to 3% even though the rate should be 2.5%. You will then have to lower the interest rate below 2.5% because you overshot the equilibrium rate. It's the same right now. Persistently running at 0% makes the neir fall even when it is below 0%. Raising the interest rates "just because" will create demand for deposits without loans and then require the interest rate to fall even deeper below zero.