The Fantasy of Central Bank “Growth” Is Finally Imploding
Having destroyed discipline, central banks have no way out of the corner they’ve painted us into.
It was such a wonderful fantasy: just give a handful of bankers, financiers and corporations trillions of dollars at near-zero rates of interest, and this flood of credit and cash into the apex of the wealth-power pyramid would magically generate a new round of investments in productivity-improving infrastructure and equipment, which would trickle down to the masses in the form of higher wages, enabling the masses to borrow and spend more on consumption, powering the Nirvana of modern economics: a self-sustaining, self-reinforcing expansion of growth.
But alas, there is no self-sustaining, self-reinforcing expansion of growth; there are only massive, increasingly fragile asset bubbles, stagnant wages and a New Gilded Age as the handful of bankers, financiers and corporations that were handed unlimited nearly free money enriched themselves at the expense of everyone else.
Central banks’ near-zero interest rates and trillions in new credit destroyed discipline and price discovery, the bedrock of any economy, capitalist or socialist.
When credit is nearly free to borrow in unlimited quantities, there’s no need for discipline, and so a year of university costs $50,000 instead of $10,000, houses that should cost $200,000 now cost $1 million and a bridge that should have cost $100 million costs $500 million. Nobody can afford anything any more because the answer in the era of central bank “growth” is: just borrow more, it won’t cost you much because interest rates are so low.
And with capital (i.e. saved earnings) getting essentially zero yield thanks to central bank ZIRP and NIRP (zero or negative interest rate policies), then all the credit has poured into speculative assets, inflating unprecedented asset bubbles that will destroy much of the financial system when they finally pop, as all asset bubbles eventually do.
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