British investment banker Lord Rothschild says that the world is seeing the greatest monetary policy experiment in history.
Massive amounts of quantitative easing, negative yields on government debt and low interest rates have put the world in the midst of the biggest financial experiment in history.
The chairman of RIT Capital Partners and a member of the prominent Rothschild banking family, Lord Jacob Rothschild, says that we are in “uncharted waters” with many risks facing the global economy.
“The six months under review have seen central bankers continuing what is surely the greatest experiment in monetary policy in the history of the world. We are therefore in uncharted waters and it is impossible to predict the unintended consequences of very low interest rates, with some 30 percent of global government debt at negative yields, combined with quantitative easing on a massive scale,” Rothschild writes in the company’s semi-annual financial report.
The banker notes this policy has led to a rapid growth of stock markets – US stocks have grown threefold since 2008 – with investments growing and volatility remaining low.
However, the real sector of economy didn’t enjoy such a profit, as “growth remains anemic, with weak demand and deflation in many parts of the developed world,” according to Rothschild.
The billionaire underlined that many risks remain for the global economy with the deteriorating geopolitical situation. Among those risks Rothschild included Britain’s vote to leave the European Union, the US presidential election, and China’s slowing economic growth. Another risk is global terrorism, which Rothschild says is a consequence of the continuing conflict in the Middle East.
According to a Bank of America Merrill Lynch report in June, interest rates in developed countries, in particular America’s 0.5 percent, are now at the lowest level in 5,000 years. In their battle against deflation, countries such as Sweden, Switzerland or Japan have even turned to negative key lending rates.
Another woe is negative yields on government bonds. In June, 10-year German government bonds dipped below 0 percent for the first time in history. Janus Capital has estimated that global yields are the lowest in 500 years, and the total amount of such bonds is $10 trillion. The investment group’s lead portfolio manager, Bill Gross, is calling it a “supernova that will explode one day.”