Our uncomfortable ride with central bankers who can’t take us home again: Neil Macdonald
The great post-Great Recession money-printing bonanza was supposed to be temporary
Chair Janet Yellen decided this week to keep the U.S. Federal Reserve’s interest rate where it is, saying the U.S. economy isn’t yet ready to withstand a modest increase. (Gary Cameron/Reuters)
The value of that money is another question.
Money is the ultimate confidence game; $10 is worth $10 because we all agree it is worth $10, and for no other reason.
Common sense would seem to dictate that creating unimaginable amounts of new money, the way central banks have been doing since the Great Recession, would erode the value of a dollar, or a euro, or a yen.
The U.S. Federal Reserve alone has printed about $3.8 trillion since 2009. That’s enough to buy 38 million million-dollar homes.
The U.S. Federal Reserve has printed about $3.8 trillion since 2009. (Reuters)
Put another way, the American central bank has printed more money than the entire Canadian economy generates in two years. Most of it was spent buying U.S. government treasury bonds — basically creating money with one hand of government and handing it to the other to spend.
Of course, the money printing distorted everything. As intended, it drove down interest rates to nearly zero, punishing old-fashioned, “virtuous” behaviour, robbing savers of return on their investments, while rewarding those who live beyond their means and bailing out scoundrels.
Risky behaviour
As intended, the creation of that money encouraged even more risky behaviour. Stock markets set new records, floating on all that cash. People bought homes they probably couldn’t afford (to a point that has scared the government of Canada; our central bank has pursued low interest rates, too).
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