Low interest rates are often pushed by central bankers as an accommodative monetary policy to spur consumption and investments leading to economic growth. The real story can be different.
CMain
Economies are complex systems. What is intended by central banks is not what actually happens with low interest rates. When it comes to credit allocation, banks have to allocate capital for a select few of projects from a large potential set. With low interest rates, the number of viable projects increases; the banker function then picks those with the lowest risk. Such low micro risk credit allocation happening across the entire economy drives down riskier and more innovative activity. This increases overall macroeconomic risk ! Low rates destroy innovation and hollow out the economy.
CEndNote
That is not all ! In addition to stopping the banker function from performing efficient capital allocation - low interest rates also make life difficult for low wage earners through dark inflation and savers by eroding their return on savings (RoS)
