The Problem With Zero Interest Rates
Over the last 20 or so years, global interest rates and bond yields have collapsed to levels that few would have thought possible even in the late 1980s. The process started in Japan in the mid-1990s following the bursting of that country's credit driven Bubble Economy, but from 2003 – and certainly from 2008 onwards – the UK, US and much of the "dollar bloc" have followed suit. Late last year, much of Europe joined the "party" and today rumours abound that China will be obliged to join the QE/near-Zero Interest Rate club. Unfortunately, we suspect that such a fate will shortly befall China. The latest economic data has been notably soft and the banking system looks to be in a relatively poor state of health. It seems that Australasia therefore is not about to gain a benefit from a resurgent Chinese economy in the near term and it is far from certain to us that lower interest rates, if and when they do arrive, will do much to revive growth in China even in the medium term.
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