With three straight years of anorexic interest rates, it looks like The Globe and Mail finally realized the winners and losers of central banking:
Itâ€™s the saverâ€™s dilemma. Life for these Canadians has become an uncomfortable squeeze between weak returns on their investments, stagnant incomes and the steadily rising cost of everything from food to fuel to housing.
Bank of Canada Governor Mark Carney, among other central bankers, has kept interest rates near historic lows since the onset of the global economic crisis in an attempt to stimulate the flagging economy, and thereâ€™s no sign of a rate hike any time soon. But some critics say the playing field is now tipped too far in favour of borrowers rather than savers. Canadians in droves have piled on debt to buy new homes and make other purchases, prompting warnings from Mr. Carney of the dangers of carrying too much debt â€“ even as his policies encourage borrowing and provide little ability for savers to generate substantial low-risk income.
Congratulations to the writers for recognizing that money printing isn’t neutral in its effects.Â As Carney and his peers, including helicopter Bernanke who wants zero bound rates till at least 2014, continue to prop up the global financial sector with cheap liquidity, it was bound to have some nasty effects on those who try to live frugally.Â What central bankers have effectively done since the financial crisis of 2008 is wage a war on savers while aiding the same profligate spenders whose debt filled escapades drove the boom.Â But of course these spenders were only obeying the whim of governments and central banks that took great delight in a seemingly thriving economy and influx of tax revenues.
Like all government action, the proceeds which flow from the coffers of the public chest and hands of easily bought politicians are a boon to some at the expense of others.Â The benefits of government are never neutral as money changing bureaucrats merely take wealth from one or more persons and give it to another.Â The same concept holds for money printing which can’t enter an economy uniformly due to ever present time and space constraints.Â The method for which central banks influence the interest rate and create money is normally conduced in coordination with large financial institutions in their respective countries.Â These big banks, such as the 21 primary dealers in the U.S., get the freshly computer generated funds first before anybody else.Â Then of course comes the credit expansion which leads to intertemporal discoordination depending on the degree to which the central banks feel like screwing up the economy.
So as The Globe and Mail writers have observed, the ultra low interest rate policies of the Bank of Canada are having a negatively disproportionate effect on savers who wish nothing more than to try and maintain some sense of financial security in the future without having to risk their capital in the more uncertain areas of the market.Â Meanwhile, low interest rates embolden spenders who seek high value goods and wish to go into debt to purchase such.Â The rational behind the Keynesian cure of recessions lies in the false belief that consumption drives the economy.Â Yet this puts the cart before the horse as one must produce first in order to acquire the funds to consume.Â Bringing money or credit into existence at the click of a computer mouse creates value only until the illusionary boom ends in a bust lest a complete destruction of the currency.
The saver’s dilemma is not a dilemma limited to those who wish to guarantee themselves a comfortable retirement.Â Abstaining from consumption and adding to the supply of loanable funds is the only means by which capital can be available for investment to grow the capacity base of the economy.Â Mike the gas station attendant may not have the entrepreneurial insight to make a sustainable market investment but if he wishes to place a portion of his wages into a bank to be recovered sometime in the future at a fixed maturity (in accordance with a 100% reserve requirement) and earn interest while doing so, his money is then available to be lent out by aspiring businessmen.
Carney, Bernanke, and their money printing friends have put the kabosh on this process by doing the only thing they know how to do: print money to suppress interest rates.Â This monetary manipulation is never neutral as it creates conflict between the beneficiaries of new funds and those who see the money last.Â Per Mises:
The notion of a neutral money is no less contradictory than that of a money of stable purchasing power. Money without a driving force of its own would not, as people assume, be a perfect money; it would not be money at all.
Changes in the money relation, i.e., in the relation of the demand for and the supply of money, affect the exchange ratio between money on the one hand and the vendible commodities on the other hand. These changes do not affect at the same time and to the same extent the prices of the various commodities and services. They consequently affect the wealth of the various members of society in different ways.