In Alan Kohler’s insightful article in the Weekend Australian, 15-16 April, p 23, links are drawn between the “low interest rate policies” of the advanced countries’ central banks, debt accumulation, low productivity and wealth inequality. While I am certain these links are valid, they are subtle and multi-faceted and so warrant some expansion.

Central to understanding them is the post-GFC transformation of central banking in the advanced economies. These central banks once managed portfolios of assets that amounted to little more than a twentieth of their nations’ GDP levels, and these were used solely to trade in, and thereby control, yields only on short maturity government debt. Such debt instruments tend not to be traded abroad or, indeed, by any but the major financial institutions within a country. The modest balance sheets had therefore been sufficient to manage the domestic money supply and, more particularly, the inflation rate, throughout the “great moderation” since 1990.

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