Expansionary monetary policies are completely irreversible

Monetary policies in OECD countries have become ultra-expansionary again in response to the COVID crisis. We believe that central banks will not be able to unwind these ultra-expansionary policies, which are irreversible: Debt ratios have adapted to the very low level of interest rates and are not compatible with higher interest rates; Very low risk-free interest rates have driven investors into risky assets despite excessively low risk premia; a rise in risk premia resulting from a less expansionary monetary policy would trigger losses for these investors and a financial crisis; Investors have invested the liquidity provided by central banks in illiquid assets; a contraction in liquidity would give rise to a liquidity crisis among investors.