Sadly for all our futures, cheap money is here to stay. Just get used to it

Central banks have been struggling to normalise interest rate policy. Increasingly, there is reason to doubt they ever will be able to

When will interest rates rise again? Will they indeed ever rise again? According to the one-time American baseball player Yogi Berra, it is tough to make predictions, especially about the future. The idea that nominal rates will remain pegged at close to zero for all eternity is, of course, nonsense; nobody sensible would ever make such a forecast. 

Bond yields in G7 advanced economies point to inflation being well below 2pc target for at least the next 10 years, and even more in some countries. Switzerland, Germany, Denmark and Finland are able to borrow 30-year money at under 1pc. This is almost beyond free money, and into the topsy turvy world of having to pay to lend money to the government. It may be madness, condemning investors to almost certain future losses, but it is hard to see how central banks could meaningfully raise short-term rates as long as such a market view prevails.

Nobody can know when the next recession might be, but it could be quite soon if the cycle conforms to type. With rates already on the floor, there will be little central bankers can do to counter it when it comes, other than crank up the printing press anew. Fiscal policy too will struggle to deliver. For most governments, the fiscal cannon is already exhausted, with public sector debts approaching or in excess of 100pc of GDP. 

In the meantime debtors are accommodated at the detriment of creditors, borrowers are favoured at the expense of savers, and the holders of assets are further boosted to the growing exclusion of those who have none. It’s ever harder to believe in a happy ending.

The oil price crash and European QE will pop London’s property bubble

For example, at the height of the Japanese bubble in the 1980s, the land around the emperor’s palace in Tokyo was said to be worth more than the entire state of California. 

Now we’ve seen the British equivalent. The value of London property is now higher than Brazil’s GDP, according to research by estate agents Savills. 

But now, the party’s over. With the oil price in freefall, there’s a lot less money to go around. Moreover, in an effort to stop the Russian economy from collapsing, Putin is trying to get the Russian super-rich to bring their money back home, using a mix of sticks and carrots. Meanwhile, sanctions have also made Britain – like the rest of the West – less of a safe haven for money from wealthy Russians.Demographics expert Paul Hodges reckons that prices could (and perhaps even should) fall by a lot more – as much as 50%. If you missed Merryn’s interview with him, you really should watch it here now.

DYI