Report
High debt ratios: What consequences?
Debt ratios are now high in OECD countries. What are the consequences of this situation? Central banks need to keep interest rates low, below the growth rate, both to maintain borrower solvency and because economies are more sensitive to interest rate movements since debt ratios are high; Since inflation is low and no one wants a drastic debt restructuring, keeping interest rates lower than the growth rate is the only way to reduce excessive debt ratios; this is a permanent taxation of savers, a form of slow debt restructuring; If interest rates remain persistently lower than growth, and in the absence of active macroprudential policies, we should expect recurring asset price bubbles, in equities and especially in real estate, and therefore major financial instability and high social tension due to increased housing problems for the middle and working classes.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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