1. It encourages households to take on potentially excessive debt
2. It risks inflating a housing bubble
3. It discourages saving
4. It encourages inappropriate risk taking
5. It threatens the health of pension plans
6. It poses a risk to inflation
Ultimately, an extended period of negative real interest rates is a heavy punishment for savers and a juicy reward for debtors. Can there be any doubt that the end result will be a household sector that is overburdened by debt and undersupported by savings?
– from ‘focus’, BMO capital markets weekly ‘financial digest’, article by D Porter and B. Reitzes, 28 oct 2011 (pdf)
A bit late to be warning of this now.
We’ve already had ‘low-for-long interest rates’ for years now, and 1-5 have already come to pass.