Low interest rates and secular stagnation

Interesting observation by Pierre-Olivier Gourinchas, a research associate at the NBER:

In recent theoretical work, Caballero, Farhi, and I show that the safe-asset scarcity mutates at the ZLB [Zero Lower Bound], from a benign phenomenon that depresses risk-free rates to a malign one where interest rates cannot equilibrate asset markets any longer, leading to a global recession. The reason is that the decline in output reduces net-asset demand more than asset supply. Hence our analysis predicts the emergence of potentially persistent global-liquidity traps, a situation that actually exists in most of the advanced economies today.

…..our results point to a modern — and more sinister — version of the Triffin dilemma. As the world economy grows faster than that of the U.S., so does the global demand for safe assets relative to their supply. This depresses global interest rates and could push the global economy into a persistent ZLB environment, a form of secular stagnation.

Source: The Structure of the International Monetary System | NBER

2 thoughts on “Low interest rates and secular stagnation

  1. Mark says:

    Well how is a young person suppose to make profit in investment if this is true? In February I made investments into Tesla, *(Surprise Surprise sold off my stock a couple weeks ago to the tune of huge profit) but now with all these fangled fee’s and stuff people pay for stock brokering, it really doesn’t leave much for the average man.

    I have Gold, Silver is depressed, *(Again) and people are saying all over the internet the market is going to hit another crash soon enough. So what would you recommend?

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