Martin Wolfe, Financial Times columnist writes: "Low interest rates are certainly unpopular, particularly with cautious rentiers. But cautious rentiers no longer serve a useful economic purpose. What is needed instead are genuinely risk-taking investors. In their absence, governments need to use their balance sheets to build productive assets. There is little sign that they will. If so, central banks will be driven towards cheap money. Get used to it: this will endure."
"Cautious rentiers no longer serve a useful economic purpose." This is a provocative notion. The central banks are providing excess money to assure money availability, especially to the highly leveraged companies. So money is available at low cost because of its ubiquity. But no one trusts that this availability will not undermine the money's very value so, behind it all, is the fear of inflation, the fear you will be paid back with money of less value than the money you lent. So, while money is available at low rates for banks to lend at higher but still low rates, the is no confidence that that availability will continue if inflation arrives and counteracts the banks' profit.
So, how is this conflict resolved? Do banks just hold the money and lend to the very solvent? Do we have low interest rates, volumes of excess money and no money available? Or are banks to be the risk takers?
How?
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