Either way, a rise in long term interest rates is liable to choke off the recovery.

But, given lower interest rates in Europe and the global slowdown, the gains are likely to be small even here.

By creating more competition for interest income and reducing net interest rate differentials, liberalized interest rates could reduce banks profitability, while SOEs will likely suffer the most, owing to much higher financing costs.

As soon as economic activity in the United States revives, interest rates on government bonds are liable to shoot up indeed, the yield curve is likely to steepen in anticipation.

If implemented now, steep rate cuts can still have a significant positive effect. If delayed, their effect is likely to be minimal.

The increased interest rates are likely to retard private investment, which lowers future growth in employment and wages.

But the form of Chinese support for Greece will likely benefit China far more than Greece in the long term.

The main source of concern is that the low interest rates at which most European governments can currently borrow are not likely to last. There are two reasons for this.

But, even with that decline, many countries long term interest rates will most likely remain higher than their growth rates for the next several years.

Over the next year or so, the Fed is likely to enter a tightening cycle, raising interest rates on a steady and sustained basis.

This vicious spiral of rising deficits and debt would be likely to push interest rates even higher, causing the spiral to accelerate.

In the past, some countries have enjoyed tearless consolidation, because the launch of a retrenchment program was accompanied by a drop in long term interest rates, a decline in private savings, or a surge in exports thanks to exchange rate depreciation (or all of these at the same time).

Over time, however, the interest rate premium is likely to be small, because higher capital requirements and contingent capital should significantly reduce the likelihood of ever reaching the triggers.

In Germany, for example, interest rates on public debt up to five years will be negative, and only slightly positive beyond that, producing a weighted average of zero. Clearly, Japan s near zero interest rate environment is no longer unique.

Moreover, US rates are likely to stay low, because America s financial system blew itself up so completely (with help from European banks), and because low rates remain, for domestic reasons, part of the post crisis policy mix.

Interest

A Federal Reserve committed to effective price stability will likely raise interest rates rather than allow any year s inflation rate to jump from 3 to 6 .

To define an interest rate fully, allowing comparisons with other interest rates, both the interest rate and the compounding frequency must be disclosed.

Interest Rates

And, in each of these countries, it is likely that interest rates will rise during the next few years, imposing losses on holders of long term bonds and potentially impairing the stability of financial institutions.

But, at a time when interest rates are very low and large businesses have enormous amounts of cash on their balance sheets, this change in the timing of tax payments is not likely to do much to stimulate investment.

But this is unlikely to continue. Long term interest rates almost certainly will eventually start to rise and eventually increasingly looks like next year.

In the second mode, asset prices fall because investors recognize that they should never have been as high as they were, or that future productivity growth is likely to be lower and interest rates higher. Either way, current asset prices are no longer warranted.

The Business Case for Europe s Refugees

What good will that do?

The Trouble With Interest Rates

When Interest Rates Rise

China s Interest Rate Challenge

The Real Interest Rate Risk

Interest rates are already low.

The Long Mystery of Low Interest Rates

The Fed is unlikely to be able to reduce long term rates any further. Their level is now so low that many investors rightly fear that we are looking at a bubble in bond and stock prices.

Other income is forecast to be 55 million in 2005 and 50 million per year for 2006 2007, levels which reflect the fact that interest income is likely to be positively influenced by the changing interest rate environment.

Second, China s central bank still controls interest rates by enforcing a roughly three percentage point spread between deposit rates and lending rates.

This ratio is called the mechanical advantage.

Central banks respond to lowered demand by reducing interest rates and to higher expected inflation by raising interest rates.

Ordinarily, as the world comes out of a downturn and global interest rates rise, at least one or two emerging market countries suffers a spectacular blowup. Not likely this time, at least for the next year.

Indeed, I would not be surprised by a continued rise in the inflation rate in 2015. In that case, the Fed is likely to raise the federal funds rate more rapidly and to a higher year end level than its recent statements imply.

Consumption demand for luxury goods is unlikely to solve the problem. Moreover, interest rates cannot become negative in nominal terms, and rising public debt may increasingly disable fiscal policy.

On the balance sheet side, even if a temporary decline in long term interest rates pushes up asset values, debt burdened households with uncertain employment prospects are unlikely to rush to consume.

A Good Rate Hike for Europe

America s Interest Rate Puzzle

How Long for Low Rates?

US Interest Rates Will Continue to Rise

The difference in payments is called interest.