World’s Central Banks Lowered Interest Rates
In response to the Great Recession of 2008, The Federal Reserve and other central banks of the world artificially lowered interest rates. Their thinking was that lower interest rates would spur economic growth.
So the Fed has left rates near zero for about eight years. The Japanese and European central banks have gone even further by introducing negative interest rates as a means of stimulating their respective economies. So how have they done? Have they successfully promoted economic growth? Unfortunately no. After eight years of ultra-low interest rates the world economy is teetering on recession.
But the Fed believes its policies have worked, that without their strong intervention the Great Recession would have been far worse. Other respected economists believe otherwise. They believe The Federal Reserve policies of interest rate repression and quantitative easing have thwarted the normal recovery process. I generally agree with their opinion but that’s not the point of this article.
Regardless of who’s right and who’s wrong there are several unintended consequences. So let me first begin by identifying the winners and losers resulting from the decisions made by the world’s central banks. And then let’s look at potentially the most egregious unintended consequence of low interest rates which is still looming on the horizon. (more…)