Central banks have been forced to cut interest rates to historical levels to counter the explosion of debt, and it is not expected to raise them in the near future, and these developments will have profound effects on the economies of countries, companies and individuals.
Writer Eric Albert says in a report published by the French newspaper Le Monde that the current moment is encouraging governments, companies and individuals to borrow, as interest rates have not reached this level of decline, and it is not expected to rise soon.
Albert adds that the world entered the Corona pandemic stage, while interest rates were still low as part of the legacy of the 2008 crisis, and in order to allow countries to access financing during this crisis, central banks have gone further and made a new step in this new financial era. Where the money is given almost free.
"Everyone agrees that interest rates will remain very low and for a very long time," the author quotes Michael Baku - from the French AXA Investment Management Corporation - as saying.
Low interest rate
Albert says that the implications of this policy for the global economy will be important, since the decisions of central banks - which will enable the interest rates to be kept close to zero - are the main phenomenon that will create other rebounds, so individuals who want to buy homes will cost them less borrowing, The wealthy who own investments will benefit from the absence of justice and the growing disparity between social classes and between generations.
On the other hand, bank savings will not generate any profits for their owners, as bank customers get almost nothing in exchange for the money they deposit these days. As for the countries, they will use this period to borrow unprecedented amounts.
The idea of central banks intervening to reduce interest rates when crises occurred dates back to the eighties of the last century, as the US Federal Reserve was the first to take this measure in 1987, following the "black Monday" that witnessed a stock market crash, to intervene immediately, declaring its readiness to provide financial liquidity.
Since then, central banks have played the same role to support the economy whenever the need arises, and during the 2008 crisis the European Central Bank and the US Federal Reserve made a decision for the first time to make the interest rate zero, and when it was found that this was not sufficient in Shariah debt purchase.
An exceptional opportunity for states
The writer says that from the beginning of the epidemic it seems as if the countries got the chicken that lays eggs, and proceeded to spend money without an account. In France, for example, government expenses reached record levels when the state decided to pump 30 billion euros in compensation for partial unemployment. , And $ 32 billion to cover corporate expenses, along with several other assistance packages for the auto, aviation and tourism industries.
This generosity was only possible thanks to the intervention of central banks, as interest rates on loans in France are almost zero, which is 0.4% in Germany, and 0.2% in Britain.
And governments have found themselves facing a historic opportunity thanks to the crisis caused by the Corona epidemic, as they have been able to pump huge sums and launched major investments, and the current period is the best ever to build hospitals and develop schools and various public works.
The disparity will increase
The writer says that real estate owners have started rubbing their hands waiting for the profits from this crisis, given that house prices will continue to rise, and these prices have witnessed a continuous rise since the 2008 crisis in the most important cities of the world, such as Paris, London and New York.
Although every city has its own peculiarities, there is a common factor that led to this phenomenon, which is lower interest rates. In the euro area, for example, the interest rate on real estate loans changed from 3% in 2013 to 1.5% currently, which means that families can borrow money The greater the home purchase, this leads to increased competition and ignited prices.
But at the same time, the author warns that the inflation of this real estate bubble - if it exceeds its severity - may eventually lead to its explosion, and thus the collapse of prices in the real estate market.
The stock market is witnessing the same phenomenon, and since lending bonds no longer generate significant profits in light of the low interest rate, investors are looking for greater returns, and they have turned towards more risk through trading in the stock market, and the evidence for this is the apparent rise in stock indexes, which It ranged between 30 and 40% compared to the lowest point during the past three months, a rise that comes despite the fact that the economy is still facing one of its worst crises in recent history.
The author believes that the lesson learned from the current crisis and previous crises is that the wealthy will continue to achieve wealth, given that asset owners reap huge profits currently in stock and real estate markets around the world, and at the same time, the poorest individuals and families suffer from low wages and demand for borrowing So it is easy to expect that the disparity between the rich and the poor will increase in the coming period.
This disparity will also appear between generations, as young people today find it difficult to purchase a first home. In contrast, the elderly who bought a home 20 or 30 years ago today have a capital that increases in value quickly.
The author also cautioned that savings account holders are in danger of losing, given that the profits they will earn on deposited funds will not exceed 0.5% in France, for example.