Every summer, central bankers and a clutch of economists gathered at Jackson Hole, the American Chamonix, in the Rocky Mountains. This time, attention was focused on Janet Yellen speech and her indications on next interest rates increases. We didn’t learn more because, following her habit, she procrastinated. But the debate about monetary policy role passed quite unnoticed. It is regrettable because it has become the main instrument of the economic policy, which is not anymore in government hands, since central banks got their independence. Highly indebted states, refusing to increase their budget deficit, relied on the decisions of their monetary authorities. And these one reduced the cost of borrowing to the point it is negative and created liquidities through the purchasing of huge amounts of bonds issued by the states and even by companies, as the European Central bank has decided to do.

This policy is carried out by Japan for a long period but did not give conclusive results because the country is confronted with atypical situations: a very weak demography which is not compensated by immigration and a geography which is now an obstacle to growth since 85% of the surface of the country is unfit to housing. It is why the Japanese experience can’t be transposed and the risk of a secular stagnation, which is frequently put forward in Western countries to justify central banks policies, is not justified.  On the opposite, the consequences of the policies followed by central banks, and whose results are, until now, unconvincing, should merit more attention. During the past, the fight against inflation was the priority. Today, it is the opposite. Inflation is considered as too weak. And it is going to last because of the abundance of raw materials, notably fossil fuels, and of the international competition which weight on product prices. So, in the future, it is expected, from monetary policies, they sustain growth and employment. But the success is not guaranteed and it is not riskless.

To offer very low interest rates might support investment in reducing the cost of its financing. But regarding households who would like to acquire a house for instance, unemployment threat has a much higher dissuasive effect than the potential attraction of a low cost loan. And for a company, why make investments if clients are not there? They use low financing costs as all the fiscal incentives, to make acquisitions in their country or abroad, which has no positive impact on employment and can have negative consequences with job reductions justified by the creation of “synergies” which contribute to increase margins and to make the operation profitable. It is what we see in France, for instance, for many years. Interest rate fall, which can reach the point they are negative, may also have consequences for the banks. Usually, they use deposits, which are not or poorly remunerated to offer loans to households or to enterprises. They transform short term resources in long term financing which generates profits. But if mid-term and long term rates are, as today, near zero or even negative, the interest rate curve is flat, margins disappear and their financial vulnerability increases. They must also comply with new prudential regulations known as Bale 3 which force them to increase the level of  equity when they lend to companies. A flat interest rate curve and a new regulatory environment take away a large part of the monetary policies efficiency when the purpose is to create an economic rebound.

Interest rate fall should also benefit to states with the reduction of the current and future cost of their debt. But, in following an incomprehensible policy of obtaining emission premiums, France has made the choice of neutralizing the positive effects of low interest rates and to increase the cost of the debt for the coming years. The reason French Treasury gave, a protection again a potential short term interest rate rise, is irrelevant since its short term debt represents less than 10% of the total public debt and ECB has given assurance against this eventuality.

On the opposite, to keep over a long period of time interest rates at a low level creates a major risk in some countries due to the structure of their pension systems. They operate as pension funds and sometimes they are managed by pension funds. The principle is simple: a capital is set up and pensions are paid with the revenues of this capital. It is mainly invested, for safety and liquidity purposes, in bonds issued by states. Due to the policy pursued by central banks, the revenues of this capital will decline at the same rhythm than the new bonds assorted with a much lower interest rate will take the place of old bonds coming at maturity, which were used as the basis of the actuarial calculus which determined the level of the pensions. In defined benefits pension systems, employees paid a contribution to the fund or to their company when it managed the fund, with a guarantee on the level of the pension. This is this system which is put in danger and the first signals are coming out. The American truck driver pension fund, the Central States pension fund, is close to default, since the American Treasury has impeached it to reduce the level of the pensions paid to the retired employees. In the U.K., provisions constituted by the 350 most important listed companies are not enough to guarantee they can fulfill their commitment to their current and future pensioners. The gap is estimated at 150 billion pounds and it has increased after the Bank of England decision to lower its interest rates folowing the vote in favor of the Brexit. In the U.S., regarding the listed companies belonging to the SP 1500 index, the gap is 562 billion dollars. The coming crisis could be of the same magnitude than the sub-prime crisis but with a political impact much higher. Pensioners constitute a more powerful electoral basis than households in default. And the states which have adopted such pension systems, the Anglo-Saxon world, some countries in Northern Europe, including Netherlands and Denmark, and, at a lower level, Germany, will be confronted with pensioners demands and will have to compensate, at least partly, the unavoidable fall of pensions if central banks carry on their accommodative policies. France is not directly concerned because our system is based on transfers, in real time, from employees to pensioners, with, in addition, accumulated reserves in funds representing more than 60 billion euros for additional pensions. But, as in the sub-prime crisis, our country will be impacted, in the case of a major crisis elsewhere.

Instead of paying a passionate attention to the next move of the Fed, leading figures gathered in Jackson Hole, should have had a better role in being concerned by the consequences of current monetary policies and in calling governments to pursue a better coordination of their actions with the central banks. States cannot do everything, to quote a famous formula, but central banks either.