What Are the Negative Effects of Low Interest Rates?
Low interest rates always sound good, but in reality, they can damage the economy, and excessively low interest rates normally are considered to be predictive indicators of economic crisis. Low interest rates tend to cause a rise in asset prices and the cost of living. At the same time, they lower the return on fixed-income investments that provide income for retired individuals, foundations and other entities dependent on bond interest for income. Risk Investing to Meet Income Targets Low interest rates can cause increased risk-taking to meet investment return or income targets. Banks, insurance companies, pension funds, retirees, charitable foundations and educational endowments–all have income targets they must meet using returns on fixed-income investments or loaned money. If they can’t meet those requirements, they must cut back their spending or, if applicable, raise their fees. Alternatively, banks can lower their lending requirements and make larger loans to borrowers with poo
