Low interest rate is harmful

America, Japan and Europe have low interest rate for many years. It was thought that low interest rate would reduce cost to business and encourage more businesses to be created to create jobs for the people. It did not seem to work well.

The low interest rate has caused asset prices to increase, especially property prices. It has made housing more expensive and out of reach to ordinary citizens - although the low interest rate helps to remove the pain of paying the mortgages.

At a certain point in the future, the housing prices will collapse. It happened in Japan, USA and Europe. This is why the banks are shaky, as they have lent too much on the inflated housing prices. There seem to be no escape from the disaster down the road.

There is actually a solution - and that is to get away from the concept of marking to market of property prices. I shall not go into much discussion here - as it requires a totally different approach. It may be necesary to avoid the global disaster.

A more fundamental question is - could the developed economies have adopted a different approach (instead of low interest rate) to grow the economy and create sufficient jobs for everyone? The answer is "yes" - and that is to get everybody to work less, so that the available work can be distributed to all those who are willing to work. There will be more time for social life. Life is not just work alone.

How can work be better distributed? This is another interesting question and requires a more detailed discussion. At this juncture, I only wish to bring out this concept. Maybe, some economists have already written about it, and we can share their thinking.

Tan Kin Lian