No government, company or individual is saying that credit is too expensive or too hard to obtain; the real issue is on the demand side of the equationIT is generally accepted that one of the keys to a healthy economy is a robust banking system. For some reason, though, central banks seem intent on doing everything in their power to make it as hard as possible for banks around the world to thrive.
Such talk has contributed to the expansion of negative-yielding debt around the world to more than US$16 trillion and caused yield curves to invert. Rates on government debt globally with seven to 10 years left to maturity are on average 30 basis points below those due in one to three years, steadily expanding from no difference back in March 2018, ICE bond indexes show.
It remains to be seen how creative ECB policymakers will get, but the banking analysts at Morgan Stanley said that any programme which comes with lower rates of even, say, 20 basis points"combined with tiered deposit rates would provide a 5 per cent EPS headwind". There is another side effect of low or even negative rates, which is that economists are starting to believe they have the unintended consequence of boosting savings rates as consumers sock away even more of their earnings to make up for lost interest income. At a recent 8.1 per cent, the personal savings rate in the US is double what it was heading into the financial crisis, when the target federal funds rate was 5.25 per cent.
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