I am not convinced that lower rates 10 years hence is a given in the US. I'd think should be considered a failure for the US if the rates are lower in 10 years!!
Yesterday night I came across an interesting Google Talk where Yanis Varoufakis, the former finance minister of Greece, attempts to explain what ails Europe.
https://www.youtube.com/watch?v=P2Zpkz7lK-sHe is a known left-winger economist, his explanations may need to be looked at from that prism. The explanations did seem to make a lot of sense to me, however.
Basically, he says:
1. Money *is* a commodity that is bought and sold.
2. Interest Rate is the cost of purchasing money
- Makes a lot of sense to me. I have written code that uses interest rate parity to predict/calculate forward FX rates where a forward market does not exist.
3. Money supply to the banks come from savings, demand comes from entrepreneurs willing to take risks for future income -> savings. This is the cycle that repeats.
4. Unlike other commodities demand elasticity does not work the same way for money. If the price of money is lowered by the central banks, that is usually accompanied with dim outlook for future. This further depresses demand for money. He uses game theory examples to show why the demand for money decreases when the cost is lowered.
5. The demand for money is not linked to it's cost, but something non-quantifiable - the optimism of the entrepreneurs and investors deploying that money for productive enterprises.
The above do make sense to me, with some rather minor reservations:
Like any left wingers, he seems to think only "earned" income matter. His conception of "savings" only feeds from earned income. He did not get into that topic, however, As per his ideological leaning, he would probably discount "investment income" or "risk-taking income" as 100% non-productive rent-seeking. Does the flow of logic above change if you change that narrative between earned vs investment income? I don't know, and am not capable enough to opine competently.
Coming back to the topic, his explanations seem to make sense to me in the context of Europe and why EU is doomed without a new kind of politics that would instill "hope".
In the US, however, there is nowhere near that level of hopelessness and "despire" that he depicted!!
I'd very much expect the economies of EU/Japan and the US to diverge in the next decade or two and US to come out of the low interest rut!! If it doesn't, that would be a failure - that I hope does not come about.