The two arguments used to rule out a significant rise in long-term interest rates are actually equivalent

Two arguments that seem different at first sight can be used to rule out a significant rise in long-term interest rates: At equilibrium, demand for money must be equal to the money supply, which is huge thanks to the expansionary monetary policies. This requires bonds to not be attractive relative to money, so long-term interest rates must be very low; Governments and central banks cannot allow a rise in long-term interest rates because of its effect on government solvency, given the very high levels of public debt ratios and fiscal deficits. These two arguments appear to be different: The first implies that the equilibrium long-term interest rate, which results from the equilibrium between supply and demand for money, is spontaneously very low; The second implies that governments and central banks will avoid any economic policy that would drive up long-term interest rates. But in reality, these arguments are equivalent: if central banks want to keep long-term interest rates very low, they will continue to hold large quantities of bonds and therefore maintain a large money supply, and economic agents’ portfolio equilibrium (the proportions of money and bonds in wealth) will then lead to very low long-term interest rates.