Interest rates are low, growth is low, inflation remains low (for that the plunge in oil and other commodity prices are partly to blame) and the outlook is for more of the same, at best.
According to Reserve Bank Governor, Glenn Stevens the current regime of ultra-low global interest rates are playing havoc with retirement income plans.
And these very low rates are no longer having the same impact on economies growth rates, leading to weak recoveries from the GFC, weak global demand and trade, lacklustre labour markets and weakening budgets and government finances.
Mr Stevens again made a point he has been talking about over the past year – whether the apparent fall in trend economic growth in many economies is a more permanent feature.
And, although it might sound and read as an esoteric argument, some of the points in Mr Stevens’ speech would help explain the volatility in global markets at the start of the year and weak growth and returns in the US, Japan, the UK, eurozone and Australia and NZ – even China, South Korea and other emerging markets.
While the Dow and the S&P 500 hit new 2016 highs overnight (for a second session), it has hardly been a convincing performance by financial markets so far this year.
Speaking in New York at an investment conference and making clear that his comments were “international in focus” rather than aimed at Australia (http://www.rba.gov.au/speeches/2016/sp-gov-2016-04-19.html), Mr Stevens said ultra-low interest rates was creating “a big problem for savers”.
"Here we are not talking about short-term trends. When everyone wants to save, the return to doing so will fall – that’s economics.”
"The issue is when long rates are very low for a long time. In such a world, the whole set of assumptions embodied in retirement income plans will be called into question,” Mr Stevens said.
“Increasingly, we hear commentary about the difficulty – or impossibility – of defined-benefit pension plans making good on their promises with long-term rates of return so low.
"The fact that accounting rules and regulations now strongly incentivise trustees to hold bonds – at the lowest rates of return in human history – only exacerbates the problem."
"The problem is surely not confined to defined-benefit plans. Accumulation arrangements are still predicated on some set of assumptions about future income needs and returns. It may take longer, but surely many of the owners of these funds are going to feel disappointment,” he said.
Mr Stevens says that in turn the weak outlook for economic growth in many developed and developing economies means we "will collectively have to face up to the question of whether trend growth is lower and, if so, what is to be done about that. A few candidates might be advanced as contributing to such an outcome. Demographics is one.
"What we might label productivity pessimism – or is it realism? – might be another. Others would point to excess debt in many jurisdictions as another.
"If trend growth is lower and we can’t or don’t want to do anything about that, then expectations about future incomes, tax bases and so on will have to be reconfigured. People will need some explanation of why we have to accept that outcome. It may be that this reconfiguration is, in fact, what is happening.
"That would help to explain why ultra-low interest rates are not, apparently, as successful in boosting growth in demand as might have been expected.
The future income against which people would borrow looks lower than it did, not to mention that the current income against which some already had borrowed has turned out to be lower than assumed. "
"If trend growth is lower and we can’t or don’t want to do anything about that, then expectations about future incomes, tax bases and so on will have to be reconfigured. It may be that this reconfiguration is, in fact, what is happening.
That would help to explain why ultra-low interest rates are not, apparently, as successful in boosting growth in demand as might have been expected.”
And he took aim at policymakers spruiking the idea of ‘helicopter money’ – that would see central banks paying money directly to consumers and bypassing banks and government.
“Desperate times call for desperate measures,” he told his audience. “But are we that desperate?"
