Over at Equitable Growth: As I continue to try to worry--without great success--the question of just where the increases in financial instability produced by the prolonged period of past and expected future extremely low interest rates and by quantitative easing comes from...
Two sources of risk:
- Sudden downward revisions in the expected future cash flows of underlying real assets that back financial assets.
- Sudden upward revisions in the rate at which expected future cash flows are discounted.
To recap my thinking before now: