7/22/2016 In the shadow of quantitative easing, party like it is 1788 - FT.com Referring to last year’s stress test of insurance companies by the European regulator, the Eesti Pank of Estonia now says that “the low interest rate scenario used in the Stress test has already arrived, and the current yield curve is already lower than that used in the test. If companies do not take appropriate measures or adjust their operations or strategy, they could face difficulties in meeting their liabilities to policyholders earlier than was calculated.” The same problem applies to defined benefit pension plans, which are what most Europeans are counting on for that part of their retirement income that is not covered by pay-as-you-go state plans. As the promises to pension, life insurance and guaranteed investment contract beneficiaries are discounted at very low or negative rates, they eat through any reserves or capital the institutions have on hand. At the same time, the institutions earn less and less income from any new securities purchases. This has happened slowly, and, with the curve bending downwards in working populations, quickly. Someone will have to explain to the pensioners and survivors that they are not getting what they are promised. I would suggest not applying for that particular job opening. The compensation for investment managers who are arithmetically certain to lose money will tend to decline over time. When someone says I am not smart enough to understand persistent negative real rates (the “persistent” is important), I have to agree. There is no way I could project all the dreadful consequences. However, it would be difficult to match the stupidity of the excuses for the current consensus on central bank policy. Not that there will be a consensus for much longer. It does not take much reading between the lines of statements such as President Obama’s last note in the FT to see that the competitive devaluation implicit in the ECB’s policy path is making th