Finance is much healthier in today’s new monetary regime

The new monetary equilibrium that is taking shape today in response to scarcity and higher structural inflation is likely to have the following characteristics: Positive real interest rates, close to growth rates; Less abundant monetary liquidity due to a central bank money supply constraint. This will lead finance to function much more satisfactorily: Return of private demand for risk-free bonds; No more abnormal use of leverage; No more asset price bubbles thanks to the disappearance of excess liquidity; Return of asset valuations based on the discounted sum of the future income stream they provide; Return of risk premia that actually reflect the risk. The problem lies not in this new equilibrium, which is much healthier, but in the transition to it from the equilibrium of the 2010s.