The capital markets have greeted the European Central Bank's (ECB) loose monetary policy with euphoria. The prices of shares and property are shooting up to dizzying heights. The ECB seems to have stumbled across a magic formula for creating wealth from nothing.
However, will this magic also make savers' worries about their pensions disappear into thin air? Unfortunately, that is out of the question.
Anyone who looks only at the current value of financial assets is laboring under a valuation illusion created by the ECB's zero interest policy. In reality, the central bank's policy has made savers and asset holders seeking financial security for their old age poorer, not richer, by robbing them of interest on their savings.