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Patrick Artus, Research Analyst at Natixis, explains that when we look at OECD countries as a whole, they are struck by the growing gap between the corporate return on equity (RoE) and the risk-free long-term interest rate.

Key Quotes

“This growing gap results from the demands for return on capital under contemporary capitalism and explains numerous features of OECD economies:

  • The skewing of the income distribution to the detriment of wage earners, which, in turn, explains the low inflation and highly expansionary monetary policies, the need to stimulate household demand, hence the increase in household debt until the 2008 crisis, and the expansionary fiscal policies;
  • The increase in corporate debt leverage, via both borrowing and share buybacks, which results in an artificial boost to equity indices. The risk of financial instability and financial crises stems at once from household, corporate and public debt in the recent period, highly expansionary monetary policies and their effect on asset prices;
  • The search for monopoly rents, especially in the new technologies sector, with the systematic formation of dominant positions.”