Report
Patrick Artus

The highly specific features of an economy where the interest rate is lower than the growth rate

Since the first half of the 2000s in OECD countries, the interest rate has been chronically lower than the growth rate (i.e. an economy where r < g, which is the opposite of Thomas Piketty’s theory). It is important to be aware of the highly specific features of an economy where the interest rate is permanently lower than the growth rate: Debt ratios spontaneously decline; there cannot be any borrower solvency problem; The prices of assets whose incomes are linked to GDP must be very high (if there were no risk premium, they would be infinite); Fiscal deficits and public debts can be very high, as they are continuously financed by the taxation of savers; But savers must accept to be taxed over the long term; if they decide to get rid of the bonds they hold, the only way to keep interest rates low is if central banks continuously buy bonds.
Provider
Natixis
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.

 

Analysts
Patrick Artus

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