Interest rates seem quite low in most of the western world and it looks like the market thinks this will last for a long time.

10-year government bonds in US, Canada, Australia, France, Japan, Austria, Nederlands, Germany and Switzerland yield in written time 1.83%, 1.56%, 1.18%, 0.04%, 0.00%, -0.03%, -0.12%, -0.25% and -0.63%. 30-year government bonds in Japan and Germany yield not more than 0.46% and 0.30%. And last sommer Austrian 100-year bonds sold with a yield of 0.90%.

While central banks have printed a lot of money and supplied the supply side of the credit market, inflation, GDP growth, and salary growth have remained low. This seems to indicate that the demand for credit is weak and aggregate demand is small.

1. Am I correct that interest rates are low mainly because of low aggregate demand? If so, what are the reasons?

I can think of some reasons, but don't know if they are important or how contributing they are. For instance:

  • Increased savings to pensions in Japan/Europe
  • The shift from pay-as-you-go to funded governmental pension systems
  • The population increase is over and less opportunity for growth
  • There are few investment opportunities because
    • There are less capital intensive firms today
    • Lots of industries have moved to China
  • Increased inequality and rich people mostly save their money or invest in real estate rather than spend it

2. How contributing are these factors?


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