Conventional wisdom has it that the forces unleashed by globalisation have depressed world long-term interest rates in recent years and will keep doing so for many years to come. This view rests on two pillars. The first is an alleged global savings glut – an excess of desired savings over desired investment – fuelled by high savings rates in China and other parts of Asia, which has supposedly depressed real interest rates. Ben Bernanke, US Federal Reserve chairman, is a proponent of this theory. The second pillar is the vast supply of cheap labour in China, India and elsewhere, which weighs on the prices of manufactured goods, keeps inflation subdued and reduces the inflation compensation that bond investors demand when buying long-term bonds – or so the story goes.

However, these pillars rest on shaky analytical and empirical foundations. Yes, long-term interest rates have been exceptionally low in recent years. Yet this is unlikely to have been caused by a savings glut, but rather by a global liquidity glut that is now receding. Globalisation is more likely to push real interest rates and inflation higher than lower in the next few years.