What Follows Zero?

Maybe someday
Saved by zero
I'll be more together
--The Fixx

Some in the media appear to be catching on. WSJ feature article discusses central bank addiction to low interest rates--something these pages have discussed many times. The focus of the article is on European central banks but the idea applies to all.

The concept is simple. Central banks seek to stimulate economic activity during recessions by cutting rates. Cutting rates creates more credit. More credit creates more borrowing and leverage. Raising rates stresses the leveraged system.

Thus, central banks can never take rates back to where they used to be. Every cycle rates dip lower than before, and never reach the previous cycle's highs.

This is why interest rates have been in a multi-decade downtrend. Central banks can't take rates appreciably higher without breaking the system.

Now, after many cycles, rates are at or close to zero. What follows zero?