Thursday, November 14, 2013

Low interest rates and the risks involved


Since the last financial crisis , there is only one strategy of central banks - low interest rates. In Europe, however , the Governing Council must make monetary policy for the entire euro area , not just for individual countries.

As the current economic situation it is different in the countries of the Euro - Fed is anything but boring.


The short-term investments are often below the inflation rate. The negative real interest rates are very annoying for savers .

Much more important and dangerous I find the situation in other financial market segments . The Investors are willing to accept much higher risks in exchange for a possible higher rate of return.

The consequences are then stretched valuations in market segments . For example, in corporate loans, or the increased M&A activity that drives the consolidation of markets.

Jens Weidmann ( Bunde Bank President ) has even spoken of a "creeping expropriation of German savers ". This is too far also for me . The expansionary monetary policy is justified in terms of the price outlook .

Nevertheless, the growing risks associated with incremental duration of measures considerably .

For one thing we should not forget:
These processes and countermeasures are not intended to help us out of the crisis . The structural adjustments in individual euro area countries are inevitable!