The Path Of Interest Rates and Society

In recent years we have seen interest rate patterns floating between negative and 0.5 percent. I do not see this changing any time soon. In the 1970’s, 80’s and ‘90’s Alvin Toffler, John Naisbit and many other noted socioeconomic trend and patter recognition authors wrote about this phenomenon we are now seeing. Further concrete articles came out in the 1990’s depicting how the “Internet of Things” would reduce inflation for the long term. However, that alone does not account for the deflationary pressures. The combination of the Internet and demographics combined have lead us to an inevitable pattern of low inflation, or deflation, and low interest rates. For this reason Governments who manage societies would be extremely smart to take advantage by investing in infrastructure, technology and education to harness the power of economies of scale. If society fails to take advantage of this financial environment, then the status of global chaos will increase from current levels.

The internet has brought about fierce competition which has limited pricing power. The commodity cycle price boom of the first decade in the 21st century has led to decreasing input costs. Demographics have led to a lack of pricing power due to a lack of demand for certain large life purchase items, such as housing, which is driven by family formation. These factors will not abate soon. In addition, over investment in many industries and asset classes in the economy have led to overcapacity, underutilization, and volatility in equity priced assets. The drive for and production of alternative fuels, and energy since the 1970’s has increased exponentially, which will eventually reduce input prices, and fixed overheads, which creates opportunities for margin expansion without increasing price. As a result, debt management is very key. However, all of this can make taking on debt less costly and reduce risk of such, if managed properly; this is also where opportunity exists.

In conclusion, this environment has confused management, and entrepreneurs, making decision making more difficult, not to mention the challenges of planning and budgeting. In order to succeed companies and governments must work together on an acceptable level of government given a capitalistic economic environment. Challenges in the legislative process have hindered this partnership between the public and private sector. The vicious decrease in inflation and deflation, hence degradation of GDP can be solved. Although we do see inflation in what I call got you industries such as Insurance. However, it will never be solved if people do not embrace the synergy required between governments and the people it serves. At the moment, it seems that there is self-defeating behaviors manifesting themselves; however these self-defeating patterns can also be methods of correction if intentions are good. It all depends on how you perceive things, perception must be coherent for there to be a positive outcome.