The downside of low interest rates (updated 1/2/2026)

Columnist Jeff Sommer published a piece called, "Dealing With the Dark Side of Low Interest Rates" in the May 17 edition of the New York Times. Mr. Sommer’s take is refreshing.  Monetary Doves and Pols on both sides of the aisle typically ignore the ill effects of low interest rates on conservative investors and senior citizens who receive abysmally low returns from their fixed income investments and don't have the time horizon for riskier investments.  

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.  

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1/2/2026 -- AI sourced supporting research for this post follows:

1. Chicago Fed: Underpriced Risk and Liquidity

The Federal Reserve Bank of Chicago has detailed how "easy money" environments fundamentally alter lender behavior.

• Underpricing Risk: Research shows that excess liquidity encourages lenders to be overaggressive, often underpricing the risk of loans in hopes that growth will offset future losses.

• Historical Correlation: Analysis of the last 200 years of stock market bubbles indicates that, excluding war years, every major bubble occurred during periods of low inflation and low interest rates.

2. IMF (2025): Stretched Valuations and Stability

The most recent Global Financial Stability Report (October 2025) warns that the legacy of low-rate environments continues to pose risks.

• Valuation Disconnect: The report finds that financial stability risks remain elevated because asset prices are stretched well above their fundamental values.

• Nonbank Vulnerabilities: It highlights that nonbank financial institutions (NBFIs), which grew significantly during the low-rate era, now act as "liquidity providers" in ways that could amplify market shocks if valuations suddenly correct.

3. Richmond Fed: The Housing Bubble Precedent

The Richmond Fed has published extensively on how low rates create "the perfect environment" for speculative bubbles.

• Speculative Shifts: Their research suggests that when returns on safe assets drop, investors speculate on riskier assets like housing to find yield, a primary driver of the early 2000s housing boom.

• Financial Frictions: Another brief explains that bubbles increase the net worth of borrowers artificially, which temporarily eases credit but leads to severe "bubbly" recessions when the prices collapse.

4. European Research: Impact on Savers and Pensions

Studies for the European Systemic Risk Board (ESRB) and other EU bodies focus on the demographic toll of "low for long" rates.

• Solvency Pressures: Protracted low rates put immense pressure on the solvency of pension funds and life insurers that provide long-term return guarantees.

• Retirement Adequacy: The OECD notes that these environments force institutions to scale back benefit promises, directly impacting retirement income adequacy for conservative savers.

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Research Summary for Your Blog Post

Research Source	Key Supporting Document	Core Conclusion
Chicago Fed	Asset Price Bubbles Report	Low rates lead to excess liquidity and underpriced risk, fueling bubbles.
IMF (2025)	Global Financial Stability Report	Stretched asset valuations and nonbank financial risks threaten stability.
Richmond Fed	Asset Bubbles & Imbalances	Low rates were a primary factor in the housing bubble of the early 2000s.
ESRB / OECD	Macroprudential Policy Report	Savers and pension beneficiaries bear the brunt of low-for-long environments.

The public courtesy award goes to Ricky Gervais

A few winners at the Golden Globe Awards on January 5th decided to espouse their personal political views to the public, even after host Ricky Gervais admonished them not to do so.

Freepik image 

The majority of us don't tune in to the Golden Globes to watch Stars advocate for a cause celebre.  It's not a free speech issue; it's a public courtesy issue.  Want to speak out about Abortion?  How about Gun Rights or Gun Control?  OK; but please choose an appropriate forum.  Actor Charlton Heston spoke out about protecting Second Amendment rights in 2012 but he made his Gun Rights remarks at an NRA convention, not the Golden Globe Awards.  Big difference.

There's no shortage of outlets to express one's political opinions on one's own time.  Golden Globe Award viewers deserve to hear from invited artists about their art and not by using that forum as polarizing crusaders.

Mr. Gervais is an intellectually honest Progressive who was speaking to his peers that evening because some of them insist on pontificating about matters having nothing to do with why they are being recognized.  He told them...

"So, if you do win an award tonight; don't use it as a platform to make a political speech."  

Then Mr. Gervais added....

"You’re in no position to lecture the public about anything," 

Bravo Ricky! 

  

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On 2/4/2025 Ricky Gervais posted this picture on X with a caption, "They're still not listening".  How right he is.

Viva Espana

My wife and I recently returned from a vacation in Spain.  I haven't posted in months and it's a pleasure to share some beauty and love that we witnessed. 

Let's start with the Spanish people themselves.  They are as warm and courteous as I'd heard and quite tolerant of Americans seeking assistance.  They're also, by and large, very well dressed! 

A word about our tour guide, Mr. Federico García Barroso.  Mr. García Barroso is, and I don't often use this word to describe others -- remarkable.  He's the kind of man who can brighten lives simply by doing what he loves to do, which is sharing his knowledge of Spain's rich history and art.  

An accomplished guide, Mr. García Barroso is also a lover of music and a fine tenor.  At the closing dinner for our travel group, he sang four songs.  One in French, one in Spanish, one in English and one in Italian.  Like I said....remarkable.  Here's a taste...CLICK HERE.

The treasure trove of art in Spain including sculptures, paintings and of course, architecture, has always been a source of pride for the Spanish.  An example; the Basilica known as the Sagrada Familia the construction of which, began in 1882, is one of the most stunning edifices I've ever seen.  Spanish authorities are working diligently to complete its construction by the 100th anniversary of the death of its renowned architect, Antoni Gaudi, in 2026.

Below you'll see a photo -- untouched and taken only with natural light -- of the interior.  I was amazed by the columns alone, which resemble giant trees in a luminous forest.  The tops of the columns literally "branch out" to support the top structure.  We learned that Gaudi's work contains rich symbolism of the natural world and the divine.  These columns are part of his expression. 

If you have the opportunity, please visit the Sagrada Familia in Barcelona.   



John Maddente photo 

T.S. Eliot and a Christmas wish

And the end of all our exploring will be to arrive where we started and know the place for the first time. 

-- T. S. Eliot

About 15 years ago I discovered an exceptional documentary called, The Fog of War: Eleven Lessons from the Life of Robert S. McNamara.

Directed by Errol Morris, The Fog of War walks the viewer through most of the 20th century as told by former U.S. Secretary of Defense and World Bank President, Robert S. McNamara.  Mr. McNamara reflects on his life's lessons and uses the Eliot quote above, at a particularly moving stage of the film.  McNamara's heartfelt and detailed ruminations, the film clips, the music by Phillip Glass and still photos all work together to vividly and memorably capture the American experience.

The Fog of War was an Academy Award Winner for best documentary feature in 2003 and I'll recommend the film for the rest of my days.  In the meantime, Merry Christmas.

*image above wikimedia.org/wikipedia/commons/thumb/2/26/Thomas_Stearns_Eliot_by_Lady_Ottoline_Morrell

A new book from Jonathan Hoenig

This coming November, Capitalist Pig Hedge Fund manager and business media figure, Jonathan Hoenig will release A New Textbook of Americanism: The Politics of Ayn Rand.  The book, edited by Mr. Hoenig, contains a collection of essays from notable writers in the Objectivist school, including one from Mr. Hoenig himself ("On Property Rights").  

Cover page image courtesy of J. Hoenig

Public Twitter Image - Jonathan Hoenig

A local hero to recall on Memorial Day

Somehow I missed this local news article about two years ago on the 72nd anniversary of D-Day.  The details of a D-Day jump with the 82nd Airborne Division (and subsequent trip back to Normandy 72 years later) is told in this Milwaukee Journal Sentinel article by Meg Jones.   Yesterday, I met the gentleman who was the subject of that piece, Mr. Ralph Ticcioni of New Berlin, Wisconsin. (Disclosure: Ralph is Uncle to one of my brothers-in-law).  

French Legion of Honour recipient, Ralph Ticcioni
John Maddente photo

As I listened to the 95 year old veteran speak about his experience, I marveled at his deep humility.  As a paratrooper that fateful day, Ralph along with thousands of his comrades were dropped behind enemy lines.  Unlike his comrades, he landed smack onto a farm rooftop in Cherbourg, France whereupon he had to cut himself loose from his own parachute which was entangled on a weather vane.  Some history readers and viewers of the movie, Saving Private Ryan will recall that Cherbourg was a location of importance during the invasion.  Speaking of the movie, Ralph told me that when he viewed the first twenty minutes of the film; he thought he was watching an actual news reel of the event.  (Many D-Day veterans have expressed a similar reaction to that segment).   

Ralph could easily recall the gear he carried that day, including the amount of ammunition and all the weapons he was issued which included a sidearm (.45 caliber semiautomatic pistol), several hand grenades and a Thompson sub-machine gun (which was swapped for an M1 Carbine rifle after paratroopers reunited with American supply units).  

So pleased to have met this man yesterday.  To all like him, living or not, God bless and thank you for defending freedom!

More than a napkin

Below is a humble cocktail napkin from a recent flight.  The inscription -- which I failed to notice at first -- has a richer significance. 

John Maddente photo

After I buckled up, a man next to me begin to banter with our flight attendant who obviously loved her work (I'll call her Laura).  Although he gave me permission to identify him for this post, I recall only his last name -- Weingarten.  Back to the flight...

Laura and Mr. Weingarten appeared to know one another rather well.  When Laura left to serve other passengers, Mr. Weingarten pointed out that both of our napkins contained this friendly, hand-written, greeting and that she had produced one for him on a previous flight.  What I learned next was my inspiration for this post.

Mr. Weingarten explained that on a previous flight, two other flight attendants took notice of Laura's gracious attitude toward her customers and criticized her napkin gesture (not knowing they were within earshot of Mr. Weingarten) because it made them look deficient. 

Shortly after Laura's colleagues finished upbraiding her, Mr. Weingarten motioned Laura to come over for a private word which he concluded with this counsel... "Don't let them crush your spirit".

The story continues.  A busy executive who travels over 150 days per year, Mr. Weingarten found a portal the airline uses to garner customer feedback.  He supplied his flight details and Laura's real name in order to extol her exemplary service and attitude. 

Airline managements take these passenger inputs quite seriously.  Laura was commended as a result.  I know not whether the other two attendants were cited in Mr. Weingarten's message, but this post is dedicated to all the Laura-types in our midst.  Don't let them crush your spirit.