After the financial crisis, investors intensively discussed the large amount of new debt accumulated by governments during the crisis and how this debt could be reduced over time (financial repression was the fashionable expression back then). Somehow, very few people seem to realise what the lessons from back then imply for the next couple of years and where interest rates can go.
Joachim, do you think there is a sweet spot when it comes to financial repression and negative real rates? What I'm considering is whether central bankers (politicians?) would prefer more negative real rates to inflate debt burdens away faster, or less negative real rates to keep inflation in check but reduce the debt burden more slowly. I'm trying to avoid forecasting structurally higher or lower inflation with this thought experiment, since higher inflation would permit higher nominal rates but still resulting in negative real rates.
Joachim, do you think there is a sweet spot when it comes to financial repression and negative real rates? What I'm considering is whether central bankers (politicians?) would prefer more negative real rates to inflate debt burdens away faster, or less negative real rates to keep inflation in check but reduce the debt burden more slowly. I'm trying to avoid forecasting structurally higher or lower inflation with this thought experiment, since higher inflation would permit higher nominal rates but still resulting in negative real rates.