|Current Policies Carry Unintended Consequences|
The fact that such policies have unintended consequences is not lost on Gross who in his article highlights the following. A more serious concern, however, might be that low-interest rates globally destroy financial business models that are critical to the functioning of modern day economies. Pension funds and insurance companies are perhaps the most important examples of financial sectors that are threatened by low to negative interest rates. To make things worse he says, Negative/zero bound interest rates may exacerbate, instead of stimulate low growth rates in all of these instances, by raising savings and deferring consumption.
It seems the households of savers suffering from low/or even negative yields are being forced to address their inability to save enough money to pay for education, healthcare, and retirement obligations. Many of the most financially responsible people are hunkering down and saving more while many non-savers have gone on a "spendathon" and reacted by taking on more debt. Americans owed nearly $12 trillion overall in 2014, an increase of 3.3 percent over 2013. Declines in some debts, including a decline in credit card debts since 2011 is in no small part attributed to numerous defaults and not from being repaid. These facts are more proof that we cannot depend on many of the statistics being bantered about by the media, government, or those with an agenda because they are outright fraudulent, flawed, or mask the real picture.
In between the lines of all of this information, good and bad, it is hard to find the truth. When we peel back the facade we find real unemployment is still at high levels and personal debt at unsustainable levels. This is a large part of the collapse in global demand and U.S. consumers no longer being able to support their historical consumption habits. If all this does not seem all that new it is because the trend 10 years ago of Americans using their homes as ATM machines has merely been replaced by low-interest rates and the Federal Reserve fueling questionable loans. The growth in subprime auto loans is a glaring confirmation of this and the main reason for surging sales in the auto sector. This effort to offset the dwindling buying power of the public sector by encouraging them to take on more debt by easing terms and artificially low-interest rates will not end well.
Footnote; As always your comments are encouraged. I have written many other articles concerning bonds, debt, currencies, where value comes from, and inflation. You will find these in the archive. Below are two other articles that might be of interest.