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OPINION

Scarred and scared

Scarred and scared
March 23, 2015
Scarred and scared

All this bears directly upon a big question for savers: will interest rates ever rise? It could be that one reason for low rates is that the great recession of 2008-09 has left permanent scars. I mean this in two separate senses.

In financial markets, it has led to increased demand for cash and safe assets. The question: “why hasn’t massive printing of money led to inflation?” has a simple answer: it’s because there’s been an increased demand for cash (and other safe assets) to match the increased supply. In much of Europe, investors are content to pay governments to store their cash: this is what negative yields mean. In the UK, record-low rates are accompanied by price-earnings ratios on non-financial shares that are still below post-1990 averages. And, despite low interest rates, UK companies are still piling up cash and paying down debt.

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