Radio Rallies & Reversals

So engineered higher prices leads to false budgetary expectations and decisions. What governments and central banks are doing is analogous to "the deliberately misplaced signal lanterns which the Cornish, in the stormy West of England, used to lure ships onto the rocks for Plunder." - according to Grantham.

For investors, it changes the normal workings of capitalism and the markets. Artificially low interest rates allow companies and stocks that would normally under-perform, out-perform; while companies and stocks that should out-perform, under-perform. Murphy's Law usually results in asset values correcting at a time of maximum vulnerability.

The problem with artificially low interest rates is that it transfers income from savers to borrowers. We have more retirees and near-retirees now than ever before. They tend to consume all of their investment income; with low interest rates their consumption really drops.

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