Central bankers are the real unacceptable face of capitalism

Central bankers think extreme monetary policy helps stimulates economies. Merryn Somerset Webb explains why she's not so sure.

The unacceptable face of modern capitalism. That's a phrase you will have heard a lot recently. It's also one that you are going to hear a lot more in the context of BHS, of our new prime minister's campaign to improve corporate behaviour, and of the financial industry's attempt to have a go at doing something about executive pay (the Investment Association has come up with a few feeble suggestions).

However, you are unlikely to hear it in the context of what I suspect historians will see as the really unacceptable face of modern capitalism the way it is distorted by our institutions. This week RBS sent 1.3 million customers a letter notifying them of a change in their terms and conditions: they can now be charged interest on cash they have on deposit at the bank. That isn't going to happen right now. But it makes it clear that our banks are taking seriously a possibility that was considered totally nuts only a few years ago that the Bank of England could cut rates below zero.

Central bankers think that this type of extreme monetary policy helps ("stimulates") economies. We aren't so sure. As far as we can see it drives wealth inequality. It pushes savers to save more rather than less (if you aren't getting a return on your cash you need to save more cash to end up with the amount you want). It keeps bad companies going under.

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And it prevents good companies from investing as they would normally partly because bad companies are creating oversupply and partly because of the fear of the future it creates: if the Monetary Policy Committee thinks things are so bad it has to resort to this kind of thing, why would anyone feel like taking risks? Look at it like this and it may be that the unacceptable face of modern capitalism turns out to be just as much Mark Carney as it does Philip Green.

The good news is that the UK's efforts to break free from the various capitalism-distorting exploitations that make up the EU seem to be going pretty well. We won't know what the short-term economic impact has been for some time yet. But the long-term outlook looks fine. We have a perfectly respectable new government. Most economists have accepted that Brexit will have a negligible influence on the global economy.

Our stockmarkets have pulled themselves together (the FTSE 250 closed above its level of 22 June on Tuesday). The list of economies keen to make trade deals with us is growing (we don't need these to trade with those economies, of course, but low tariffs are good in themselves).

With all this in mind, MoneyWeek would like to find a less miserable word than Brexit to use to describe what the UK is up to. So far the best suggestion has been "Brenaissance". But we reckon MoneyWeek readers can do better than that. Send your ideas to editor@moneyweek.comand we'll announce the winning entry in two weeks' time. The winner gets the magazine free for a year and there's some (French sorry) wine for the runners-up.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.