August 22, 2016

High interests do not solve any retirement problems, if there is no real economic growth to pay for these

Sir, Jonathan Ford writes of how “The Bank of England’s decision to cut interest rates and resume quantitative easing” is creating all sort of expected deficits in retirement plans, and specifically to “UK’s 6,000 still existing defined benefits schemes” “Real change in attitude is needed to solve the issue of fund deficits” August 22.

Ford also mentions the responsibility of the “existing generation…to strive to provide for the obligations to workers they have inherited”. That is very correct, but the possibilities of it will also very much depend on the health of the real economy.

If there were no low or even negatives interest rates, but only high positive interest rates, in order for these to translate into real positive rates, the interests would, in the medium and long term anyhow, have to be paid by real economic gains.

And that is why, once again, I insist that the most egregious thing that is happening to that future economy on which we all will depend, is the risk aversion that has been introduced into the allocation of bank credit by means of the risk weighted capital requirements for banks.

It is just amazing this is not even being discussed.

@PerKurowski ©