The trouble with Government & Central Bank interference in markets is the law of unexpected / unknown consequences and this has been a situation repeated over history

Recessions are the markets way of weeding out potential issues. Inevitably some businesses go to the wall but in theory a severe downturn does leave a stronger more vibrant market with more opportunities, for those who can weather the storm

However, once Central Banks get involved in their misguided attempts to influence markets, a short sharp recession can drag on for years or decades whilst ‘zombie’ businesses are propped up and can keep going despite the fact that they should have been wound up years before

This is where we are today – a global foul up by Central Bankers, who, for some reason, seem to believe they know better than anyone else and continue to implement damaging policies in attempts to bolster consumer spending and all manner of other remedies to avoid a recession. Most of which only make the situation worse by kicking the problem into the 'long grass' for the future

  • Unfortunately they never seem to take on board the resulting fall out
  • Why are houses so expensive that the UK younger generation cannot afford to get a foothold on the housing ladder? - could it be because the knock on effect of low interest rates is increased property prices 
  • Is it really a good thing to encourage consumer spending at all costs – and ignoring the individual debt cost - generally incurred by those who can least afford it?
  • What happens when pensioners who were able to live on the interest from their capital can no longer do this with zero interest rates - inevitably they will go to the State for support to supplement their non-existent interest receipts - so this backfires on the State. After all we are now being told that within 8 years 20% of the population will be over 65 year old - so how many of these have been let down by the BOE decisions & how are they to make up for their shortfall in their income as a direct result of Central Bankers?

Therefore, how does a race to the bottom by Central Bankers benefit anyone with ever lower interest rates, whilst each country tries to 'steal a march' on others by reducing their rates even further?

Furthermore, why is there such a disparity between Credit Card interest rates and the BOE rate? – and what, if anything, has been done about the usury rates charged by Credit Card providers. How about policies such as making Credit Card interest rates no greater than say the Bank Rate plus 10%

And now these 'Masters of the Universal' have hit upon negative interest rates, helicopter money and all sorts of ideas that will only exacerbate the current situation in an attempt to ensure short term fixes at the expense of future problems

Enter Perpetual Bonds – Wow, here is a winner! 

We all know that global debt is pretty much beyond counting so this could be the answer to Government dreams

Essentially Perpetual Bonds - aka Consols but potentially ex coupon - have no maturity date, and when one couples this with zero or negative interest rates, Governments around the world suddenly have an epiphany

Why don’t we issue ‘perps’ combined with zero/negative interest – which would solve the global debt problem. After all if one can get enough ‘suckers’ to buy these bonds then:

  • It is very cheap money (borrowing) – bond holders are paying you interest to hold your paper
  • Here is the kicker, you never have to pay the money back (perpetual bond) and over time the debt will erode to nothing anyway

So why not load up these bonds with the entire global debt and just move on - problem solved

OR SO THEY THINK!

Tags: | Categories: Bank of England | Economics | UK Government
Comments are closed