[quote=carlsbadworker][quote=XBoxBoy][quote=gzz]The big underlying cause of declining rates is demographic. [/quote]
I think your certainty that the lack of inflation and the inevitability of low rates is something you should rethink.[/quote]
I don’t think gzz said anything about lack of inflation. His prediction is about rate, which is about oversupply for saving v.s. market demand for those saving.
If I understand him correctly. He is saying that demographic change creates more savings and the rich also has excessive saving, that they will accept however low returns due to these excessive savings that there’re not enough market demand for it (e.g. lower corporate investment demand).
The logic is sound to me.[/quote]
Okay, fair enough. Allow me to revise my last sentence to say, “I think your certainty that the inevitability of low rates is something you should rethink”.
While I don’t think gzz’s premise about increased demand is wrong I think it will get overwhelmed by the policies of central banks. Sure, the amount of savings might be growing, and that extra demand for bonds would cause lower rates. But when central banks buy trillions of dollars of bonds that’s a much bigger impact. And central banks can only do that because inflation is so low.
My premise is that without the deflationary forces of globalization and automation, central banks would not have been able to drive interest rates so low. While I fully agree that an increased rate of saving (whether from demographics or other forces) would cause lower interest rates, I do not see that as the principle driver of low rates.
Worth considering, if gzz’s premise is correct then we should be able to find data to back up the claim that between demographics and income inequality the rate of savings has been going up. (And that’s what is causing low rates) I don’t have that data, but a quick google gets me this: https://data.worldbank.org/indicator/NY.GNS.ICTR.ZS
The data displayed there shows an increase in savings rate relative to GDP but not a substantial increase. And the last decade is mostly flat. Perhaps there is better data out there, but without solid data, I’m going to continue to question gzz’s premise that the big underlying cause of declining rates is demographic. To me both globalization and automation are likely to be causing a bigger impact.
