Lionel Shriver Lionel Shriver

Money is rotting

Punters and pundits alike reacted to rising mortgage rates in the wake of Truss’s mini-Budget with indignant horror. Leaving aside a market overreaction to fairly modest policy proposals, I wanted to tell aghast homeowners: ‘Well, what did you think was going to happen, people?’ In 2008, the plunging of central bank rates to nearly zero was super-weird. (EU rates eventually going negative, meaning you paid banks to keep your money, was even weirder.) Flatlined interest rates were a response to an emergency. Yet when emergency measures continue long enough, they start to seem totally normal, in this case inducing the bizarre expectation that borrowing money will be basically free, for ever.

Sorry, virtually free borrowing is intrinsically dysfunctional. It (surprise!) encourages more borrowing, so that central banks essentially solved a debt crisis with more debt. Combined with rampant money-printing, zero interest rates were a short-term expedient that made the big picture still worse. The longer zero and even negative interest rates persisted, the more deeply public and private parties sank into a debt trap – in hock for so much money that now even tiny rises in the cost of servicing that debt are disastrous for homeowners and governments both.

After all, with inflation raging towards or into double digits, why do you think central bank rates in the US (3.1 per cent) and the UK (2.25 per cent) are still so pathetic? Jerome Powell, the chair of the US Federal Reserve, and Bank of England governor Andrew Bailey are up against the wall, damned if they raise rates and damned if they don’t. But these gentlemen helped create the quandary in which they’re mired. Negligible interest rates, which reward debtors and rob savers, thus transferring enormous wealth from the prudent to the profligate, should never have been sustained for an entire generation.

If emergency measures continue long enough, they start to seem totally normal

The Fed rate’s vertiginous plunge to .09

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