Wednesday, 15 September 2010

False Economy: why central bank control of monetary policy caused the credit crunch and won’t help get us out of it

It is human nature to want things sooner rather than later – and that instinct, to be a bit morbid for a second, is probably based on the inevitability of death. “You might get run over by a bus tomorrow” as a justification for living for the moment has a genuine statistical truth to it. For most people, there are certain big ticket purchases (such as a house, for example) that would literally require more than a lifetime to save up to buy outright.

There is an answer, of course.


Think of the interest rate as the extra premium, or price, you pay for having a sum of money right now. If you don’t have enough money, you can borrow it. The interest rate is the price you pay for not waiting – not saving. An entity that has funds already (another person, a bank, etc) can lend you the money and the interest is paid to them. Thus people without money but are prepared to pay extra to have it now, are brought together with people who already have money and would like a fee to loan it out.

Now, what happens when the government comes along and, instead of letting the market find an interest rate based on how many borrowers and savers there are, how much of a default risk borrowers are, etc, it says, “THE RATE OF INTEREST RATE MUST BE 0.5%”?

The same thing that always has, and always will happen when the government lowers the price of something below the market rate.


Savers are discouraged from saving. But lenders are still not going to lend to a default risk, even at zero interest rates. Low savings rate + reduced revenue from loans = lenders starved of funds.
The banks have had billions of our money thrown at them and they have effectively said, “what free money, don’t know what yer talking about mate” and walked away hands in their pockets whistling whilst the economy dies. If you inherited a fortune, would you want to squander it on lame investments just because the money was given to you? Of course not. That’s why low interest rates and even outright money printing won’t solve the problem. We need a real recovery based on real saving. Not a false economy based on worthless paper conjured out of thin air.

Government, of course, doesn’t want to face these hard truths. That would mean we, the hapless working stiffs who generate the real wealth in the economy would see clearly right now how much poorer we really are. The here and now is what Government cares about, because they need to get re-elected. If that means laying waste to our future, so be it. They don’t care. They’re not up for re-election in a decade. They’re up for re-election in a few years. So fuck the next generation, right?, And so the deficit financing and inflationary monetary policy continues – when Government faces an ugly truth about how little the economy can fund its parasitic activities it will always pick the easy option of robbing future generations through borrowing and the current generation through inflation, the ultimate stealth tax imposed by our contemptuous, unelected, scum sucking Central Bank.

But hey, that’s what you get when the same fucking morons who caused this mess are in charge of implementing the fix. Did the Bank of England monetary policy committee get sacked for totally failing to foresee the credit crunch (in fact, let’s tell it like it is, did they get sacked for causing the credit crunch?). No! In fact they are getting more powers to regulate the economy. The Central Wankers that caused this mess in the first place. What a fucking joke!

You won’t hear about any of this in the newspapers or on the TV by the way.

The truth is not out there. It’s right here. Keep watching.

This is Fuck The Government, signing off. Take care of yourselves, and each other.

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