… Rather than Keep Pushing the Burden to Politicians
Central banks have been so successful with forward guidance and convincing the public that positive saving rates will soon be a thing of the past that individuals are leaping at what they believe to be their last opportunity to save with them. The issue with a ‘lower yields forever’ scenario is that one needs to save a lot more to maintain living standards upon retirement, and a collective increase in precautionary savings lowers final demand, in turn constraining investment and resulting in an even worse macroeconomic outlook. This is a typical case of individual rationality breeding collective irrationality and the reason why I believe Nobel-prized economists’ models are broken…
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