the biggest economic policy experiment of all time is entering the next round. In phase one, more than 700 interest rate cuts and billions of bond purchases have pushed yields in all asset classes and pushed their prices up, but one aspect has been overlooked by investors.

Whoever makes an investment always buys a given stream of expected returns. If investors pay more for it, the return drops - in extreme cases to zero. The absolute value of the cash flow has not changed. In this case, the seller collects a large part of the possible yield in advance, so to speak. The buyer is left with the lower yield - and the hope of finding someone later who will pay even more.

Therefore, another aspect was part of the plan. Investors who feel richer and entrepreneurs who get money for zero would consume and invest more. Growth would increase, cash flows would increase. But this did not happen. Growth expectations are even being revised downwards. In the face of Brexit, terror and political uncertainties, there is growing concern that revenue streams could be lower in the future - this would be fatal for investors who have paid high prices.

Economists have long identified demographics and, above all, high indebtedness as the reason for structurally low growth. But now a way out is in sight: even more debt. This is phase two of the experiment.

Fiscal policy appears to be becoming more expansionary worldwide. Expenditure programmes are planned in Japan, the USA and Italy. In the case of Spain and Portugal, the EU waived penalties for excessive deficits. Even more new debt at zero interest, which is then bought indirectly by the central banks, seems an attractive idea. What is particularly piquant is that even today most countries are so heavily indebted that they could not cope with higher interest rates. If the debt burden continues to rise, a change in monetary policy would hardly be possible. The central banks would be trapped. Zero interest forever? We are curious how the experiment will end. From a boom on the stock markets to a loss of confidence and a crisis, everything is now conceivable.

Sincerely,

Klaus Meitinger
Chief Editor

Moritz Eckes
Publisher