An Unsustainable Demographic Makeup - But that is only part of the truth. The dilemma had its beginnings years earlier. "Interest rates are as low as they are today because the key economies loaded up on debt until 2007," says DekaBank economist Kater. In the financial crisis, it then became clear that these nations, as well as companies and citizens in many countries, had amassed too much debt, which could no longer be reduced by higher economic growth as it could in earlier years.
There are also demographic reasons for this. The percentage of young people in the population is shrinking, and yet they must generate greater economic output to reduce the debts they are inheriting from the current generation.
Because this is unsustainable, a redistribution from creditors to borrowers, or from savers to the state, is now occurring, as Kater explains. The operative expression is "financial repression." The government makes money when interest rates on government bonds are lower than inflation. Its debt burden is decreased, while savers are left to foot the bill, with their assets losing value in real terms.
The consequence is a massive redistribution. McKinsey, the consulting firm, has calculated that the governments of the United States, Great Britain and the euro zone already saved $1.6 trillion between 2007 and 2012 as a result of low interest rates. This is offset by a loss to private households of $630 billion. Older citizens are losing more than younger people, because the latter tend to have more debt and fewer savings.
As much as savers are being fleeced, there are also those who profit from low interest rates. People who own real estate have benefited from increases in value in recent years, while stock owners have seen Germany's DAX share index climb from one record high to the next. But this primarily benefits those who are not worried about having enough retirement income.
1 comment:
the art of good leadership is to get people to do things that you need/want them to do for the good of the organisation (and indeed the organisation's members), whilst those people think they're doing things that they want to do.
It works.
Leadership need not be tyranny, but it is an art - and good and clear leadership is usually a prerequisite for organisational success. I'll wager that the European Union is destined to fail unless either (a) a single individual is elected to lead it to superstatedom, or (b) a single individual seizes the leadership role and drives it to superstatedom crying "To hell with popular consent!"
Sooner or later somebody is going to have to grip the European Union and drive it to wherever the Euronutjobs want it to be. Meantime, for as long as there is nobody obviously in charge of the EU/Eurozone/ECB, the behemoth that it is will merely keep lumbering on towards oblivion.
Who's in charge here?
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