Since the financial crisis of 2008, interest rates have been maintained by central banks at a historically very low rate, or even negative in some European countries, Japan and Switzerland. Not only is the level of rates exceptionally low, but the duration of this monetary policy is also particularly long. If rates have been excessively low since 2008, in reality they have already been declining for almost 40 years. The "neutral" rate, supposed to neither promote growth nor a slowdown in the economy, has been falling for decades, driven by powerful and slow forces such as the aging of the population, the decline in productivity and the savings of households and businesses.

Consequences

This prolonged phenomenon of such miserable rates has helped to avoid a period of deflation following the financial crisis, and has subsequently lowered unemployment rates, eased the financial burdens of borrowing on companies, governments and individuals, and initiated a historic bull market in stocks. With the return on money becoming increasingly low, investors are having to turn to riskier assets and pay more and more for them. The price/earnings multiples of companies are exploding.

Les grosses entreprises profitent des taux bas pour émettre de la dette et racheter directement leurs concurrents plutôt que d'innover. Le marché se concentre, les géants deviennent de plus en plus grands. D'un autre côté, les entreprises mal gérées sont subventionnées artificiellement par les faibles taux d'intérêt. En temps normal elles feraient faillite. Sans compter que leurs cours sont maintenus sous perfusion des ETFs qui investissent dans la totalité du marché, sans distinction. Les taux bas et les fonds indiciels encouragent ainsi la médiocrité. Les entreprises de croissance sont nettement favorisées par les taux d'intérêts faibles. Les entreprises de valeur au contraire sont à la peine depuis bien longtemps, ce qui représente une anomalie historique.

Treasury bonds, especially long-dated US bonds, have performed as well as stocks since rates began to decline in the early 1980s. This too is an anomaly from a historical perspective.

Alors que l'économie s'est redressée et que le chômage est tombé à un niveau très bas, les taux d'intérêt ne sont paradoxalement pas revenus à leurs niveaux d'avant la crise. Malgré l'injection massive de liquidités, l'économie est en faible croissance et l'inflation tout juste positive. La masse d'argent créée par les banques centrales a plus profité au marché boursier et au remboursement des prêts qu'à l'économie réelle. Le chômage a été certes réduit, mais les salaires ne décollent pas et les conditions de travail se sont précarisées. Les employés ne peuvent donc pas stimuler la demande intérieure.

Pas l'effet escompté

In a normal economy, a large influx of money into the system leads to growth and inflation. However, you can't make a donkey drink if it's not thirsty. Companies took advantage of this easy money to digitize, robotize, buy out their competitors, in short, invest in capital rather than create jobs. Reasonable governments took advantage of this to write off their debts, but we hardly saw any Keynesian policies. Boomers rushed to buy bonds, considered low-risk, to provide their pensions with income. Similarly, pension funds are required by law to hold large quantities of bonds. This strong demand in a supposedly safe asset class has helped to further weaken rates and inflate bond prices, making financing pensions even more expensive. Today, bonds are clearly in a bubble and risky.

Guère d'autres solutions

Central banks don’t have many monetary tools left in a recession. They can push rates into deep red territory, but that will make it even harder to fund pensions and endanger the banking sector. So they’re unlikely to go very far with this approach. There’s also the famous helicopter money, which consists of distributing money directly to individuals, either in the form of tax cuts or through government spending, financed by central banks. This is a theoretical approach that has never been tested. So the only credible solutions are fiscal policies, via increased spending and/or tax cuts financed by governments. Very low interest rates undeniably make this easier.

With stimulus packages added to years of abundant liquidity and low unemployment, there is a good chance that inflation will start to rise again. Central banks could then gradually raise their rates again, but one dares not imagine what this will do to financial markets that have become accustomed to accommodative policies.

L'indice des prix à la consommation

In the US, since 2010, the consumer price index has been stable. We can even say that the bulk of the downward trend that began in the early 1980s has stopped since the beginning of this century. The last time it was sustainably stable and low was just after the Second World War. As for the interest rate, the only time it was this low was also after the war, but for a much shorter period. After that, it only rose for 30 years. The rate has never been sustainably lower than the price index, as has been the case for more than ten years.

Un futur qui risque d'être mouvementé pour certains

The further we get from the last recession, which was already more than eleven years ago, the closer we get to the next one. It may even have already started, against a backdrop of protectionism, trade wars and viruses. Cycles usually last 7 to 8 years, but we are already well beyond that. If governments have to implement Keynesian policies to compensate for central banks, inflation will resume as soon as the crisis is over and rates will rise.

Investors who are mainly invested in growth stocks will be the first to suffer from this situation, just before those who are positioned in long-term bonds. Conversely, investors positioned in value stocks are likely to do well in the future.