When the greed of governments, institutions and people began to show signs of turning into a full-blown economic crisis, I used to watch a well-known economist appear on several television channels demanding, always in a vociferous tone of voice, that governments around the world should set interest rates at zero. According to him, that would be the solution for the crisis.
Governments are never slow when it comes to doing the wrong thing. Not that they listened to him, in particular, but that is the route they chose. Of course, in economics, a zero interest rate is the heavy artillery in the arsenal. If that fails, as it did, you are only left with the ultimate option of a nuclear bomb called the printing press, and you print money until the cows come home.
With all this new money, central banks buy government bonds, home mortgages and car loans. Now feeling relieved of their debts, investment banks point out to their customers that the currency has devalued, and that therefore it is an excellent time to go into the stock market. Wonderful advice. The small investor does just that and, at best, manages to average low single digit earnings, while the currency continues to devalue at rates reaching the double-digits. Banks themselves cleverly take another route and invest in soft commodities, such as sugar, coffee and soy beans, which sends prices through the roof, and in the currencies of commodity-producing countries, which distorts exchange rates and penalises their exports. This new money never improved the economy, but, nevertheless, provided banks with gigantic profits.
Governments justify this course of action by claiming that they have just managed to avoid enormous social costs. Maybe so, but for the greedy and the imprudent. However, they did so by penalising the prudent, the savers and the retired. Is that social justice? Is that social justice?
From time immemorial, capital has always moved from the inefficient to the efficient. Let the inept fail. That's social justice.
