The normalisation of real interest rates: What consequences?

The transition in OECD countries from a low-inflation regime to a high-inflation one, due to the proliferation of scarcities, will have a first effect of leading to a normalisation of real interest rates. It will also spell the end of policies that create excess liquidity. This development will have significant consequences: End of asset price bubbles and public or private overindebtedness ; end of excessive valuations for various assets; Due to the normalisation of the cost of capital, the need to carefully select investment projects; Difficulty making investments that have low financial returns but are necessary due to the externalities they generate (investments in the energy transition ); End of excessive risk-taking linked to the abnormally low level of risk-free real interest rates, and therefore higher risk premia; Across-the-board reduction in leverage effects, for example leveraged share buybacks. This “new economy” will probably be both more stable and less dynamic.