Deflation fare thee well – Part I: In search of real returns

I see a slightly different dynamic in progress in bubble parts of Europe - keeping interest rates low to sustain affordable interest payments on existing debt, while tightening lending rules to reduce the ability to take on new debt. Those on the train-crash get to keep running towards the back of the train as the train is moving very slowly. Eventually they will run off the back as they write-down their debts. Everyone else boards a new train (perhaps the long-term fixed interest train?).

Well. It might happen. In theory, anyway!

There seems to be a recognition rising in Central Banks that they are responsible not only for price inflation, but for asset inflation. They can’t do anything about asset inflation using interest rates (not without causing damage to the economy), so that leaves - quantative easing and quantative tightening - varying money supply, capital adequacy thresholds etc. It also means regulating all forms of liquidity provision. This is the ‘financial services as utilities’ model that is being talked about. I expect it to be fiercely resisted by the current FIRE participants.