Some say that low interest rates lead to inequality. What if it’s the other way around?

In the financial world, it is a matter of belief among many – the Federal Reserve’s low interest rate policies and other measures aimed at boosting the economy are driving stock and other assets to the moon, and are therefore a major cause of high asset imbalances. .

That idea can be heard in many sections of documentaries, newspaper articles, and cable finance news. It could be backwards.

New evidence suggests that low interest rates and high asset prices are not new. The Federal Reserve Bank’s annual research at the annual Jackson Hole Economic Symposium (held in Kansas City) on Friday was a moving impression.

That new idea is related to the rise in markets – and the risks of financial stability when it ends – why interest rates are so low, financial asset prices are so high and what the federation has to do with it.

Advanced economies have had low interest rates for more than a decade. These can be seen as the result of powerful world powers pushing down central bank decisions and pushing them downward – creating a relative increase in asset prices.

In fact, the global savings rate is also known as the “natural rate” of interest, as well as r * (and is called r-star): it does not stimulate or reduce the economy.

Central banks, in this story, are equal to the drivers on the highway who have to adapt their speed to road conditions. The federation has set low rates for the past decade because these have stabilized the economy. If he tried to elevate them, the result would be failure.

In a statement at the symposium, MIT economist Christine Forbes said:

But the question arises as to why this saving liver never exists.

The paper, by Princeton Atif Mian, Harvard Ludwig Stroub and Amir Sufi of the University of Chicago, examines two key explanations: the effects of the baby boom pension savings on demographics and the effects of high inequality, with the rich accumulating more share of income than the middle class and the poor.

They recognize that the role of high inequality is more important than demography.

High-income earners have not increased their savings. Instead, they were conquering the largest economy. According to the researchers, in recent years the share of revenue in the top 10 percent has reached more than 45 percent, up from about 30 percent in the early 1970s.

With more high-income people making more money, and more savings, it will generate an additional trillion dollars over the years – from 30 percent to 40 percent of private savings between 1995 and 2019.

So whatever the cause of income inequality – it may be a combination of technological change. Reduction of union power; Globalization; Changes in tax policy; And all-market volatility is raising property values ​​for those rich.

“When the rich get richer in terms of income, it creates a frugal liver,” says Professor Mian. “Interest rates force interest rates to fall, which makes the rich richer. Inequality breeds inequality. It’s a whirlwind, and we’re stuck in it. ”

Their paper is rarely mentioned, and other economists at the symposium mentioned a few issues – for example, declining interest rates are occurring even in countries with different income inequalities than the United Nations. States. And Jason Furman, a Harvard economist, noted that the spread of equality in the 2000s has been staggering, but that natural interest rates have fallen since then.

However, low income, high asset prices, and high asset disparities are among the reasons why income inequality is so strong that it puts the federation and other international central banks in a difficult position.

In an email, Professor Sufi said: “These forces are probably so powerful that the federation will never fight them.”

And whatever the reasons, even the slightest reversal has led to the debt burden being severe, resulting in unpredictable waves.

“The transition to a higher level can be very tedious,” said former vice-president Donald Conn. In a speech at the symposium, the federation, which is currently based in the Bronx Institute, called for more aggressive action to avoid risks in the financial system.

If nothing else, the new paper provides further evidence of how some of the world’s deepest economic problems are intertwined. And he goes on to say that in terms of interest rates, inflation, growth, and the future of the economy, everything is interrelated more than ever before.

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