Mr. Sommer points out that in an ultra low rate world, retirees and those approaching retirement, are left with three poor choices...
“Live on less, dip deeply into savings or take on more risk…”.
A steady trough of cheap money and easy credit induces bad decisions that impact all of us. As mentioned in this space over five years ago, a perennial ultra-low rate environment coupled with lax credit standards, was one of the factors that enabled the masses to over leverage and buy homes they couldn't afford before the housing bubble burst.
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We hear much about the economic benefits of low interest rates including increased capital investment and consumer spending; but there's also a down side.
Asset bubbles and inflationary pressures strike us all when the cost of credit stays too low, too long. Yet, it's still easy to find pundits and politicians who always advocate for lower interest rates. Cheap money. Who's not for that?
As for the once unthinkable prospect of the FOMC taking short terms rates below zero (a scenario also cited in Sommer's column); it was comforting last week to hear Fed Chairman Powell publicly tamp down the likelihood.