The pandemic will leave a legacy of even lower interest rates—and even higher asset prices

永恒的零 The eternal zero-书迷号

FOR FINANCIAL markets the 2010s were a time when it was hard to tell good news from bad. Even as the world laboured to shake off the financial crisis, the prices of stocks and bonds—not to mention houses—kept climbing. But good news, such as wage growth picking up, could cause markets to wobble. The reason was uncertainty over how far growth would go before central banks, especially the Federal Reserve, raised interest rates. Anything presaging monetary tightening caused bearishness. In the link between economy and markets, monetary policy was a signal dampener.

When covid-19 struck, there was no such ambiguity. Global stockmarkets tanked in March. For a time even American Treasury bonds, the world’s safest asset, fell in price amid a scramble for cash and dysfunctional money markets. But eventually the signal dampener kicked in. The Fed cut interest rates and unleashed a torrent of liquidity to keep dollar markets functioning, preventing a credit crunch, mass bankruptcies and lay-offs. Other central banks followed suit. Since January central banks in America, Britain, Japan and the euro area have created new money worth $3.8trn, much of which has kept yields on long-term government debt close to zero.

Markets were not just calmed: they began a bull run that defied gloomy forecasts. Between the start of April and the end of August, with central banks pinning bond yields down, global stockmarkets rose by 37%, fuelled by rising technology shares. America’s corporate-bond markets saw record issuance in the first half of the year. Many housing markets also defied gravity. In August house prices in Sydney were 10% higher than a year earlier; and Britain’s house prices hit an all-time high, said the Nationwide building society. Tech stocks had a torrid start to September but the market shed only about a month of gains. Asset prices remain high.
市场不仅恢复了平静,还开始了一轮牛市,与灰暗的经济预期背道而驰。从4月初至8月底,随着央行压低债券收益率,全球股市在科技股大涨的带动下上涨了37%。上半年美国公司债发行量创下历史新高。多地房地产市场大涨。8月,悉尼的房价比去年同期上涨了10%;据全英房屋抵押贷款协会(Nationwide building society)称,英国房价创历史新高。科技股在9月开局不利,但股市仅跌去了一个月左右的收益。资产价格仍居高不下。

The show of force by central banks, and the divergence between high financial markets and the real economy, marks the apotheosis of trends that began in the 2010s. Before covid-19, central banks were already accused of keeping so-called “zombie” firms alive, exacerbating wealth inequality and putting home ownership beyond the reach of young renters, even amid weak economic growth. Since the pandemic hit these side-effects of monetary policy have all, in a short space of time, got worse.

This is not central banks’ fault. They have no choice but to respond to the economic conditions they face. For decades interest rates—both short- and long-term—have been on a downward trend as central banks have fought shocks to the economy. That monetary stimulus has not provoked much inflation in consumer prices demonstrates only that central banks have been reacting to market forces, not distorting them; the global desire to save has grown faster than the desire to invest.

When interest rates are low, the arithmetic of discounting makes future income streams, and hence assets, more valuable. A recent paper by Davide Delle Monache of the Bank of Italy, Ivan Petrella of Warwick University and Fabrizio Venditti of the ECB finds that the decline in the “natural” rate of interest, which balances saving and investment without causing unsustainable recessions or booms, can explain most of the rise in the ratio of prices to dividends in America’s financial markets all the way back to the 1950s.
利率在低位时,折现算法使得未来的收入流变得更有价值,从而提高了资产价值。意大利银行的达维德·德莱莫纳凯洛(Davide Delle Monache)、华威大学的伊万·彼得雷拉(Ivan Petrella)和欧洲央行的法布里齐奥·文迪蒂(Fabrizio Venditti)最近发表的一篇论文发现,“自然”利率(即可以平衡储蓄和投资而不会引发不可持续的衰退或繁荣的利率水平)的下降可以解释自1950年代以来美国金融市场中本利比的大部分上涨。

The pandemic is just the latest shock bearing down on the natural rate of interest. In America, the 30-year interest rate has fallen by almost a percentage point since January. This fits the historical pattern. Recent research by Òscar Jordà of the Federal Reserve Bank of San Francisco, and Sanjay Singh and Alan Taylor, both of the University of California, Davis, studies 19 pandemics since the 14th century and finds that they have suppressed interest rates long afterwards—longer, even, than financial crises. Twenty years after a pandemic, they estimate, interest rates are about 1.5 percentage points lower than they would otherwise be. Covid-19 is not entirely comparable to episodes that include the Black Death and Spanish flu, because it is killing few young workers. But an effect even half as large would still be significant, given how low interest rates were already.
疫情只是令自然利率承压的最新一轮冲击。1月以来,美国的30年期利率已下降了近一个百分点。这符合历史规律。旧金山联储的奥斯卡·约尔达(Òscar Jordà)以及加州大学戴维斯分校的桑贾伊·辛格(Sanjay Singh)和艾伦·泰勒(Alan Taylor)近来研究了14世纪以来的19次全球大流行病,发现它们在之后很长的一段时间里抑制了利率,甚至比金融危机更久。他们估计,在一次大流行病发生的20年后,利率比如果没有这场瘟疫的情况低约1.5个百分点。新冠肺炎不能完全与黑死病和西班牙流感等瘟疫相提并论,因为它对年轻劳动力致死率很低。但由于利率本来就已经很低,即使后续影响只有一半仍然会很显著。

There are several ways in which covid-19 is strengthening structural forces pulling interest rates down. One is by boosting the desire of households and firms to hoard cash. Savings rates have surged as economies locked down and it became hard to spend. Some see the resulting swollen bank balances of consumers as potential fuel for an inflationary boom. But it is more likely that damage to the labour market leads to a prolonged period of “precautionary” saving, as is normal after recessions.

Pandemic-driven rates

This is not a typical recession. It might have depressed interest rates by drawing attention to the danger of massive disasters, when the world was already becoming more attuned to the risks of climate change. Economists have long suspected that the risk of disasters weighs on interest rates by buoying demand for safe assets. (Decades ago, some were arguing that disaster risk explains the “equity premium puzzle”: the outsized gap between safe interest rates and the returns from shares.) In a recent paper, Julian Kozlowski of the Federal Reserve Bank of St Louis, Laura Veldkamp of Columbia University and Venky Venkateswaran of NYU Stern model the effect of covid-19 on beliefs about risk and estimate that it might depress the natural rate of interest by two-thirds of a percentage point. “Whatever you think will happen over the next year,” they write, “the ultimate costs of this pandemic are much larger than your short-run calculations suggest.”
这不是一场典型的衰退。在世界已变得更关注气候变化的风险之时,这场衰退可能引起了人们对大规模灾难的危险的关注,从而压低了利率。长期以来,经济学家怀疑灾难的风险会通过增加对安全资产的需求而压低利率。(几十年前,一些人提出,“股权溢价之谜”也就是无风险利率和股票收益间的巨大差距可由灾难风险来解释。)在最近的一篇论文中,圣路易斯联储的朱利安·科兹洛夫斯基(Julian Kozlowski)、哥伦比亚大学的劳拉·维尔德坎普(Laura Veldkamp)和纽约大学斯特恩商学院的文奇·文卡特斯瓦兰(Venky Venkateswaran)共同模拟了新冠肺炎对风险理念的影响,并估计它可能使自然利率降低三分之二个百分点。 “无论你认为未来一年会发生什么,”他们写道,“这次疫情的最终损失都远大于你的短期计算所显示的。”

A third way in which the pandemic may depress the natural rate of interest is by boosting income inequality. Before it, many economists were arguing that, because the rich save a higher proportion of their incomes than the poor, higher rates of income inequality in America and other rich countries had, over a period of decades, contributed to a decline in the natural rate of interest. One estimate by Adrien Auclert of Stanford University and Matthew Rognlie of Northwestern University finds that nearly a fifth of the decline in the natural rate of interest since 1980 is attributable to rising inequality. The pandemic could compound this effect if it leaves labour markets less equal.
疫情可能压低自然利率的第三种方式是加剧收入不平等。在此之前,许多经济学家认为,由于富人比穷人存下了自己收入中更大一部分,美国和其他富裕国家更高的收入差距在过去几十年中部分导致了自然利率下降。斯坦福大学的阿德里安·奥克莱尔(Adrien Auclert)和西北大学的马修·龙利(Matthew Rognlie)的一项估算发现,自1980年以来自然利率下降的近五分之一是由不平等加剧造成的。如果疫情使得劳动力市场变得更不平等,就可能加剧这种影响。

Against these forces is an enormous rise in government debt. One explanation for low interest rates and weak growth after the financial crisis was that there was a shortage of safe assets to absorb the world’s savings. But the pandemic has seen a flood of such assets created as governments have issued debt to fund emergency spending. In June the IMF projected that global public debt would rise from a weighted average of 83% of GDP in 2019 to 103% in 2021. Covid-19 has even seen the creation of a new safe asset: the EU plans to issue €750bn ($875bn) of joint debt. In theory, new debt should soak up savings, pushing up the natural rate of interest.

Yet there is little sign of these huge deficits eliminating the shortage of safe assets. That is partly because central banks have bought public debt in a bid to create growth and inflation by keeping long-term interest rates low. Oxford Economics, a consultancy, projects that safe-asset supply will decline in the next five years to just over a quarter of world output, against two-fifths before the financial crisis. The upshot is that the world economy increasingly resembles Japan, where even decades of deficits and net public debts of over 150% have not broken a low-inflation, low-interest-rate equilibrium.
不过,并没有多少迹象表明这些巨额赤字消除了安全资产的短缺。部分原因是央行购买国债以期把长期利率维持在低位,从而促进增长和通胀。咨询公司牛津经济研究院(Oxford Economics)预测,未来五年安全资产的供应量将下降至仅占全球总产值的四分之一略多,而金融危机前为五分之二。其结果是,世界经济越来越像日本——该国数十年的赤字和超过GDP 150%的净公共债务都没有打破低通胀与低利率并存的局面。

This does not guarantee stagnation. Japan’s economic woes are often overstated because its growth is weighed down by ageing. In the 2010s its GDP per working-age person grew faster than America’s. But Japanification does create a dilemma: whether to increase deficits in an attempt to break the low-inflation, low-rate spell, or to rein in borrowing in the knowledge that the debt-to-GDP ratio cannot rise for ever. Low rates make it easier for politicians to pay for all sorts of demands on the public finances, including more spending on health care and pensions as societies age and on fighting climate change. But they also leave governments dependent on loose monetary policy and vulnerable to rising interest rates, should they ever return. During the pandemic governments and inflation-targeting central banks have been working hand in hand, but the question of what happens if their goals diverge is an open one.

Low interest rates also mean that high asset prices are all but guaranteed. This will reinforce complaints about wealth inequality and intergenerational unfairness—complaints that carry more bite given the unequal distribution of job losses this year. Homeowners, mostly drawn from the professional classes, will benefit as they can take advantage of cheaper mortgages. So will homebuyers. One reason why housing markets are holding up is that the downturn has not hit the typical house-hunter. Those without wealth or access to finance will feel understandably aggrieved.

Most significantly, central banks will be deprived of their traditional tool for fighting recessions: cutting short-term interest rates. The recovery from covid-19, and from future recessions, will instead hinge on the willingness of governments to provide an adequate fiscal response. Even central-bank bond-buying is of declining importance, because long-term rates are close to zero. The most that monetary policy can do is to stop long-term rates rising. The Fed’s recent promise to allow inflation to overshoot its 2% target during the recovery will take effect only if fiscal stimulus brings about more inflationary conditions.

If there is an overarching impact of low interest rates, it is fragility. The public indebtedness they allow might cause problems when circumstances change. It becomes harder to fight recessions. Investors find it harder to hedge risk, because with yields near zero, bond prices cannot rise much further, however bad the news. And high asset prices, especially when accompanied by income inequality, threaten the social contract. It is against this background that economic policy needs a fundamental rethink.■