Think backwards from the idea that long-term interest rates cannot rise

A rise in long-term interest rates in OECD countries would have catastrophic effects, given the levels of debt ratios and asset prices. One can therefore “think backwards” from the idea that governments and central banks will have to cooperate to prevent long-term interest rates from rising (ask what governments and central banks will do to prevent long-term interest rates from rising instead of asking how governments’ and central banks’ choices will affect long-term interest rates). This suggests that: Central banks will not react to temporary, even strong spikes in inflation; Monetary policies will be normalised in a way that does not drive up long-term interest rates (no reduction in the size of central banks’ balance sheets, no significant increase in short-term interest rates); Governments will steer clear of policies that increase wages and will prefer for example social transfer payments over wage increases to support low incomes; Governments and central banks will allow sharp rises in asset prices that result from interest rates remaining low .