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February 8, 2015

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Posted: 08 Feb 2015 12:06 AM PST

'Anxiety and Interest Rates'

Posted: 07 Feb 2015 09:57 AM PST

Robert Shiller:

Anxiety and Interest Rates: How Uncertainty Is Weighing on Us: Anxiety and uncertainty are weighing on individuals even where the overall economy is growing. Some of this angst is the fallout from advances in information technology..., the technologies may eliminate our jobs... Even people with moderately high incomes have reason to be uncertain. ... Along with this ... is the psychic cost of growing income inequality. ...
I suspect that there is a real, if still unsubstantiated, link between widespread anxieties and the strange dynamics of the economic world... — a link that helps to explain why ... short-term interest rates ... are very low,... long-term rates, too..., why stock market prices are so high in some countries and why real estate prices have come up in many places...
When there is unusual uncertainty about the future, and if not enough new business initiatives can be found to increase the supply of good investments, people will compete to bid up existing investable assets. ...
Uncertainties ... can affect asset prices through an important indirect channel, government policy... Governments ... use expanded credit in a desperate effort to placate a dissatisfied electorate. Credit expansion can create housing bubbles and an illusion of wealth for many people, for a while, at least. The idea is: "Let them eat credit."
But with rising anxiety about our economic lives and about the state of the markets, we need something more substantial than credit expansion to help us. We all need to think hard about the underlying mechanisms producing individual uncertainty and inequality, and we need to devise financial and insurance plans to help us to deal with whatever looms ahead.

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