7 Global Economies that are increasingly looking addled and distorted due to low interest rates

Central Bankers across developed economies seem to believe that there is an interest rate so low that resultant financial market wealth will ultimately spill over into the real economy.  The negative aspects of low yields and financial repression are making the following economies increasingly addled and distorted:

1.       Venezuela

Bankruptcy just around the corner due to low oil prices and policy mismanagement. Current oil prices are a function of low interest rate central bank policies over the last 7 years

2.       Puerto Rico

Default underway due to over spending, over-promising of retirement benefits and inability to earn adequate investment returns – due to ultra-low global interest rates

3.       Brazil

In deep recession due to low commodity prices, governmental scandal and exorbitantly high real interest rates to combat the effect of low global interest rates and currency depreciation of the Real.

4.       Japan

260% governmental debt/ GDP ratio – economy failing to kick start even with the booster dose of two of the three arrows from Abe’s armor. Japan is today, what America could be tomorrow

5.       Euroland

‘Whatever it takes’ says Draghi. An economy that lost its spark plug has hit an effective negative interest limit that makes investing in these economies increasingly difficult. Low interest rates beget growth – defies logic in Euroland’s case

6.       China

Debt/ GDP is 300%, loss of USD 1 Trillion in reserves to support an overvalued currency, distorted economic model relying on ghost towns, dirty factories and government spending which never seems to transition to a consumer led growth. Economy looking increasingly addled

7.       U.S.

US economy is in a Black Hole. No one knows how the Fed will handle is enormously expanded Balance Sheet. Housing sector delivered, corporate sector still nonplus and shaky, high yield bonds are back – internally generated growth model seems to be keeping the engine going, for how long – no one clearly knows

Monetary policy is a means and not the only means – out of Abe’s three arrows, most of the central bankers have overused the two arrows of fiscal and monetary policy adjustments. The third arrow – structural changes – lies unused, both in Abe’s and Central Banker’s arsenal.