In the article “Six Years of Low Interest Rates in Search of Some Growth”, The Economist speaks about the positive and negative implications of low interest rates for the global economy. According to The Economist, “never in recent economic history have interest rates been so low for so many for so long.” The positive effects of low interest rates on the economy are quite obvious. First, they enable the Federal Reserve to buy mortgage-backed bonds, thus lowering the costs of home ownership (The Economist). These actions enrich home owners, giving them more money as they are trying to refinance their loans (The Economist).
Borrowing becomes cheaper; more people are willing to purchase new homes, thus restoring the stability and growth prospects in the housing market (The Economist). In addition, businesses experience a sort of euphoria over the lowering borrowing costs. In this situation, multinationals find it easier to borrow from European governments at more affordable rates (The Economist). Eventually, through lower interest rates, companies have a unique chance to replace their debt assets with equity (The Economist). Easy money opens the gateway to buying other companies (The Economist).
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Yet, nothing comes easy, and the Economist points to the risks and deficiencies of keeping interest rates too low for too long. At the level of individual consumers, untempered enthusiasm about low interest rates may lead to a financial bubble (The Economist). In this atmosphere, many potential investors are likely to acquire riskier assets, since the costs of financing become less tangible (The Economist). The situation with corporate bodies is quite similar – businesses develop a strong appetite for risky financial activities and assets, instead of using their money to build new factories and hire new workers (The Economist). However, for the most part, these risks and deficiencies are an inescapable element of the new economic order. Most likely, the world will keep to this low-interest policy as long as it allows minimizing the risks of another recession (The Economist).
From the picture drawn by The Economist, low interest rates look like a wonderful, remarkable opportunity for many consumers and business owners to restore their economic and financial position. The last recession was devastating to the extent that encouraged individual consumers, banks, and whole economies to adopt unpopular measures that could potentially reduce the risks of another downfall. The benefits of the new economic order are various and diverse, from cheaper borrowing to improved performance in the housing market and increased opportunities for companies to buy their rivals. Apparently, low interest rates facilitate business growth and fast enrichment of individual consumers, but are consumers and businesses ready to use these opportunities and financial resources to secure themselves from failures in the long run?
The information provided by The Economist indicates that many actions undertaken by consumers and businesses may end up as a serious economic failure in the long run. Individual consumers and businesses that purchase risky assets today may regret their decision in the distanced future. The decision to invest financial resources in risky stocks and bonds rather than fixed assets may also become a serious barrier to achieving a better competitive position in a long-term perspective. The euphoria surrounding the low interest rates is quite logical but highly misleading. Today, consumers and businesses should think twice before making another macroeconomic step, to avoid creating another bubble and losing their assets in the future.
