Bardonomics

Last week, I argued against any premature interest rate rises by central banks. A couple of objections to extremely low interest rates—on the basis that they are ineffective in spurring current growth—were addressed. However, there is a potentially more pressing, and certainly quite well publicized, fear regarding interest rates. Many contend that reserve banks have kept benchmark rates artificially low through their unprecedented quantitative easing programs. Some worry that these low interest rates, and asset purchases by central banks, could be distorting markets and precipitating another calamitous bubble.  At a basic level, QE floods the financial system with new money in the hope that this will give succor to bank lending and consumer spending. This is all meant to boost confidence in the economy, which creates a virtuous cycle of more lending and more spending.  However, the resulting low interest rates may also encourage unproductive over-investment in th