How can long-term interest rates be kept well below long-term growth in the long term?
It is because long-term interest rates in OECD countries are now much lower than nominal potential growth that public and private sector debt ratios are not a problem, fiscal deficits can be high, and financial and real estate asset prices are rising. Exiting this regime could therefore trigger a serious financial crisis (debt crises, need to rapidly reduce fiscal deficits, fall in asset prices). But how can long-term interest rates be kept below long-term growth in the long term? Technically, it is sufficient that central banks, which do not require a return on their assets, simply continue to buy bonds as much as needed (this is "yield curve control" ) ; But from a political economy perspective, is that possible? Households hold, directly and indirectly, a very large quantity of bonds. Will they accept the loss of income due to very low interest rates in the long term? Or could there ever be a “flight from bonds” that even central banks could not absorb?