One of the most remarkable features of the modern economy is that interest rates are negative in real (ie, after inflation) terms and are expected to remain so. This is not unprecedented. Real rates were negative after the second world war and again in the 1970s. But in both cases inflation was much higher than it is today. Headline inflation rates are now falling, thanks to lower commodity prices. But with the exceptions of Greece and Switzerland, economists are not expecting outright deflation this year. So with short rates close to zero, real rates will stay negative. As for long-term rates, government-bond yields are below 2% in America, Britain and Germany.
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