Excellent article.
We have been living in an era of deflation since the 2008
financial crisis with inflation vigilantes worsening the situation from central
banks to inflationary hawks by not allowing for the cleansing effects of
slightly higher inflation/expectations and a redistribution of income from
creditors to debtors. The result, historically low long term yields unable to
boost economic growth and employment, economies mired in slow growth and a debt
overhang which may take decades to write down to manageable levels if policies
remain unaltered. The QE embraced by most central banks of indebted countries does
help but should be reinforced without half measures and the threatening fear of
higher inflation for it is no more than fear for as long as long term bond yields
do not predict otherwise and to my knowledge till very recently, they have been
showing the exact opposite.
In fact Central Banks should aspire to create market induced
sustainably higher long term yields for its this indicator which should lead us
to expect stronger growth.
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