But what really counts are real interest rates – what is left after deducting inflation. In Germany, for example, the real interest rate on deposits in 2007 was around 0%, because interest rates of 2.2% were offset by inflation of 2.4%. Now it is 0% again. So is all the concern about expropriation through the current low interest rate policy overblown?
The turbulence also seems to signal the need for changes in the financial system that are likely to centre on issues such as transparency – including the links between on- and off-balance-sheet vehicles – making improvements to risk management frameworks, valuation standards and market functioning including looking at the role of rating agencies.