The three versions of the mechanism that keeps real long-term interest rates low and makes an expansionary fiscal policy possible

A high public debt ratio is not a problem if real long-term interest rates remain very low, and an expansionary fiscal policy therefore can be conducted. It is therefore crucial to identify the mechanism that can keep real long-term interest rates very low. There are three possible mechanisms: Real long-term interest rates are very low because of the deflationary situation of the global economy: there is ( ex ante ) excess savings over investment, which means equilibrium real interest rates are low; Real long-term interest rates are very low because central banks have promised to keep them low, whatever the economic environment (even if growth is vigorous and inflation rises); this is the version of modern monetary theory (MMT); Real long-term interest rates are very low because central banks can maintain a very expansionary monetary policy thanks to the lack of inflation: a return of inflation would mean the end of low real interest rates. So betting that interest rates will permanently remain low amounts to: Either believing that the first mechanism is the right one (global deflation) and that there will be no upturn of demand for goods and services in the future that will end deflation; Or believing that the second mechanism is the right one (central banks have undertaken to keep long-term interest rates very low, which is probably the case with the Japan); Or believing that the third mechanism is the right one (expansionary monetary policies) and that inflation will not return .