Global Economy’s Addiction to Cheap Credit Getting Dangerous
An important financial organization has issued a grave warning about the global economic "recovery."
This is an important issue which is not getting sufficient attention. The Federal Reserve, which is the Central Bank of the United States, has been very explicit in stating that they plan to continue enacting policies that will keep interest rates at historical lows. These low interest rates have lead to several outcomes—financial markets are soaring to all-time highs as investors put money back into the stock market to achieve better returns on their capital. It has also put pressure on banks to lend more money since they can make a hefty profit paying depositors almost nothing in interest while they charge borrowers higher interest rates.
The problem is that maintaining artificially low interest rates is very expensive and sooner rather than later the Federal Reserve will have a difficult time keep rates so low. When interest rates start going up, much of the economic and financial activity that depended on such low rates will evaporate and could lead us back to a severe recession.
[Institute of International Finance]
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