How central banks have stolen your freedom – and killed democracy

I have often written about the problems of low and negative interest rates. We reckon that the perverse effects of modern monetary policy are now so extreme that they outweigh any of its perceived benefits.

We think rates should go up – soon and quite quickly. But a new commentary just out from Charles Gave of GavKal looks at the awfulness of negative/low rates in a different light. They are, he says, “a fundamental assault on freedom”.

We have a limited time on earth, and figuring out how we allocate that time is a “right that we should be able to exercise unhindered”. In a rational economic world, we would use the interest rate to help us do that rationally.

If rates are high, we might save more – particularly if we are young or have children to provide for. If they are low – and the magic of compounding won’t work in the same way – we will save less. But if they are zero or negative, we are all “deprived of this freedom of choice”. You can still put your money in the bank, of course, but it won’t do you much good: you’ll get no return on it. Negative rates effectively expropriate savers.

The result is that the future has been compressed into the present and we are all effectively forced to be grasshoppers – to fail to provide for our own futures.

By fiddling with monetary policy governments have “granted themselves the right to intervene in our time preferences.” This “must mean the end of democracy”.

You may think all this sounds a bit extreme, but stop to think about how super-low interest rates make you behave, and you will see Gave’s point. The cost of free money is really getting very high.

I’m currently seeing some of my ex finance friends from my Japan days. We all got this report one way or another yesterday. However it didn’t create a new conversation – it just added to the old: we have been discussing the evil effects of free money (falling productivity, asset bubbles, pension disasters, pensioner anxiety, a collapse in capital spending, fast rising inequality) since we met.

The consensus even before Gave’s powerful intervention was this: if we want any kind of normality to return to capitalism our central banks have got to normalise interest rates. Fast.

  • Weaver

    Yes. This. Tim Martin’s comments too: The political turmoil we are experiencing in Government resulting from the EU referendum result and the leadership battle in the Labour Party are all symptomatic of a revolt. The electorate want change. The status quo isn’t working for the masses. They sense something is amiss and ‘taking back control’ is setting the agenda.

  • Hugh Jarsse

    Let me add ‘grotesque capital misallocation’ to your list of ills that central bankers are cooking up with their zirp policy. The damage these quacks are doing to society is staggering and yet certain commentators revere them as if they were deities. But time is running out for them. The pensions crisis will start to materialize in the near future if they continue this course with zirp. People who have saved for a lifetime will want to know why they have nothing to show for it. These muppets can’t even understand that in trying to avoid the normalization of interest rates they are by their actions creating the very conditions which will precipitate that normalization. They are storing up the mother of all financial crises that will make 2008 look like a walk in the park. When the bond bubble finally blows people will be baying for blood – and the blood of the CBs will be at the top of the menu.

  • Peter

    Agree, agree, agree… putting an ineffectual coiffured Candian cretin in charge of a central bank creates the conditions for a credit crunch beyond current comprehension.