Mr. Crane said he doubted that there was huge demand for insurance coverage and said that while there had been an early surge of inflows into the new accounts, much of this reflected relatively high "teaser" rates that would not be sustained when interest rates returned to more normal levels.
Finally, the McKinsey authors warned that if and when interest rates returned to 2007 levels, Governments' debt-servicing costs could rise 20%.
When interest rates return, will there be an equally rapid decline?" he asked.
The problem of the debt will also be compounded when interest rates return to normal levels, increasing the interest portion.
As interest rates return to more normal levels, the cost of servicing the national debt is likely to increase, too.
"Like all bubbles, these exaggerated increases can rapidly reverse when interest rates return to normal levels," he said.
When the economy recovers and interest rates return to historical norms, taxpayers will no longer be subsidizing artificially low interest rates.
With low interest rates, returning consumer confidence and a growing population, gross lending by credit is expected to increase by 4% over the next four years.
After all, cheap money makes it easier to borrow than to save, easier to spend than to tax, easier to remain the same than to change.Can one foresee the circumstances in which interest rates return to normal with, say, short rates at 3-4% and bond yields at 5-6%?
Losses for bond holders are sure to happen at some point, assuming interest rates return to more normal levels, and this week's downward revision of first-quarter economic growth may provide a warning that the Fed's growth expectations, which are more robust than those of many economists, may be too rosy.
