,
7 tweets,
2 min read
Read on Twitter
Succinct explanation on the downside to keep interest rates low from @HowardMarksBook 
Low rates lead to excess demand for goods and services (because you can borrow cheaply to buy them) and a tight labor market (because businesses have access to cheap capital to hire)
This puts too much market power in the hands of companies selling goods and services causing them to raise prices, effectively causing inflation
Inflation is hard for people living on fixed incomes (e.g. pensions) because their incomes are fixed, but expenses rise.
It's also harder on low-income families because they don't have the means to hedge inflation.
It's also harder on low-income families because they don't have the means to hedge inflation.
Low rates penalize savers using safe instruments like cash or high-grade bonds.
In order to make up the difference, savers start investing in more risky investments and/or using leverage.
In order to make up the difference, savers start investing in more risky investments and/or using leverage.
This "stretching for yield" can introduce systemic risk to the financial system.
If rates are low when this risk shows up, central banks don’t have at their disposal as much of their best tool for stimulating economies: the ability to cut rates.
