May 2016

• Today’s world is threatened by many a ticking time bomb. Some, like immigration, financial crises or terrorism, tend to blow up suddenly; but the majority – including rising inequalities, ultra-low or negative interest rates, technological change, overindebtedness, fading productivity and so on – are defusing slowly but surely. So slowly as not to create the feeling of an impending crisis. And yet as in a hall of mirrors, they conflate with each other, contributing to the rising global sentiment of populist angst and to the feeling that we live in a regressive era.
• 23 countries accounting for roughly 25% of global GDP have now central-bank policy rates of zero or less. A further six, including the US, have policy rates of 1 percent or less, meaning that in 60% of the world economy, the scope for monetary stimulus using conventional (policy-rate cuts) or unconventional tools (QE) is exhausted. NIRP (Negative Interest Rate Policies) in Japan and the Eurozone seem inevitable, like insulin injections for diabetics: they do not constitute a cure, entail undesirable side effects, yet without them the patient will die (i.e. the economy will enter into depression). As they won’t succeed in lifting aggregate demand, “helicopter money” (“monetary finance” in the economists’ jargon) is next.
• At the end of April, sovereign debt with negative yields amounted to $9.9 trillion ($6.8tn in longer-term bonds and $3.1tn in shorter-term ones). Their impact on (1) banks, (2) insurers, (3) pension funds, and (4) money market funds is devastating, costing investors about $24 billion annually (according to Fitch). Insurers and pension funds are the hardest hit. If ultra-low or negative interest rates persist for too long, they will ruin the retirement of all those on defined benefit pension schemes that run the risk of insolvency.

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