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How Long Can Artificially Low Interest Rates be Maintained?

July 15, 2019

How Long Can Artificially Low Interest Rates be Maintained? 

QUESTION:

Dear Martin,

First let me thank you for your paradigm shifting blog and the incredible conferences you and your team put together. They really are on a level all their own.

As we approach the next turning points in the ECM it seems that there are tremendous cross currents favoring both inflation and deflation. Given the extremely high debt rates of nearly every country in the world and even a large swath of the corporate world, some degree of moderate to even high inflation coupled with continuing low interest rates seems like the most likely path that central banks and governments will attempt to engineer. This path would avoid the deflation and societal instability that massive defaults would bring while quietly erasing the debt burden. I recognize, this path still leaves the pensions in a crisis, but that is a long slow problem primarily effecting a population group well past their prime years for fomenting revolt.

Of course the historical record shows that inflation is generally, perhaps even always, accompanied by high interest rates in the market.
I was wondering if there has been a historical precedent for moderate inflation (say 8-10% per year) combined with low interest rates on debt (sub 5%). It seems this would be the goldilocks path out of the increasingly ugly position in which the world finds itself. Leaving one to wonder if anyone has ever been able to accomplish such a combination for long? Any ideas how such a strategy would be accomplished, and what the probabilities are that our central bank and government will be able to pull it off?

Sincerely,

JU

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