Dollar hits decade low after RBA cuts rate to 0.75pc to head off rising unemployment. Lowest official rate ever in Australia.
They truly do not seem to understand that they are putting the fear of God into businesses with these desperately low interest rates. The economy is already dwindling; this will do nothing except speed up the process.
Lower interest rates just encourage people to take on more debt. The loaned money is created out of thin air, so it increases the amount of money in circulation — so it appears as if there is more spending power out there and encourages more activity. But of course, the purchasing power of all money soon dwindles to take this into account, because the amount of goods and purchases available to buy does not change.
Low interest rates, however, favor those who buy assets and watch them appreciate. Which so helps the economy. And which is why every asset market is near record highs (except gold and silver, which get the big “no” from central banks). This is why economic inequality has flourished in the last few decades — our monetary policies have greatly favored asset shufflers over people who actually work for a living.
But it’s all coming to an end, any time now, perhaps in a few years. Rates cannot go negative without considerable coercion. And debts are too high — much higher than ever before (we are talking centuries, possibly millennia here). We have a massive debt problem now, which is strangling our economy. And the central banks have just encouraged even more debt with their rate cut.
Emergency low rates for 10 years now. Too many short term “fixes” have led to a real crisis.
That graph again.
After the next crisis hits, natural economic forces will push the money supply back to the blue band by the time it’s all resolved. Either half the money goes “pfoot!” (like in the Great Depression), or we’ll get a sustained and heavy inflation to whittle away the value of the debt (the politicians will choose this course) .
Remember, all debts get paid, either by the borrower or the lender.
Abraham Lincoln weighs in: