Must-Read: Ryan Avent: Everything Is Not OK: “Things might or might not be ok in the long run….

…[But] in the short run, there is plenty to worry about…. Yields around the world were already extraordinarily low before the Brexit vote. In the days immediately after they plummeted. While equities have risen, bond yields have not. The yield on the 10-year US Treasury is 30 basis points below where it was on June 23rd. The real yield is close to zero. The 10-year gilt yield is below 1%. The yield on 10-year bonds in Germany, France and the Netherlands are basically zero. Falling yields on safe assets indicate some combination of falling expectations for growth, falling expectations for inflation and a rising risk premium….

The range of possibilities has widened, and the odds of quite a bad outcome have increased. Worryingly, central banks have very little room to respond…. Neither short- nor long-term rates can be pushed much lower. The best hope for effective monetary stimulus is asset purchases designed to weaken a country’s currency. But not everyone can depreciate simultaneously…. Quantitative easing everywhere could help if it boosted expectations for growth and inflation. But at the zero lower bound and with little hope of massive fiscal stimulus, central banks might well struggle to raise animal spirits. In a world of very low inflation and very low interest rates, people only have to cling a little more tightly to their money to tip economies into recession…