The Easy Money Trap: How Low Interest Rates Are Fueling Dangerous Bubbles

Imagine a casino where the house deals chips freely and the stakes keep rising. Central banks have flooded the global economy with cheap money for over a decade, driving asset prices to dizzying heights.

During the tech boom of 2020-21, price-to-earnings ratios soared above 30, rivaling levels before the 1929 crash. Bonds with negative yields reached $17 trillion globally, meaning lenders paid borrowers to hold their money—a surreal phenomenon.

These boom-bust cycles are driven by human nature and policy choices. Cheap money encourages risk-taking, inflates bubbles, and creates a wealth effect that fuels spending. When central banks tighten policy, bubbles burst, debt becomes unsustainable, and recessions follow.

Yet, each crisis is met with renewed easing, restarting the cycle. This pattern delays necessary corrections and increases systemic risk.

Breaking the easy money trap requires balancing growth with prudence, encouraging saving and investment without choking the economy.

Next, we explore the global financial and trade disruptions that compound these economic challenges.