"After the Lehman Brothers bankruptcy in September 2008, neoliberal economists implemented the anarchist Proudhon's revolutionary scheme. Central bankers pushed interest rates to their lowest level in five millennia. In Europe and Japan, rates turned negative - an unprecedented development.
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Central bankers congratulated themselves for restoring calm on Wall Street. The bogey of deflation was dismissed. Unemployment came down sharply. These were the 'seen' effects of zero interest rates. The secondary consequences of zero interest rates went largely unseen. Yet they were there for anybody who cared to look.
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the sharp decline in interest rates had encouraged households to spend more and save less. The downside of bringing forward consumption from the future, White suggested, was that people must in fact save more for any predetermined goal; and, given the prevailing low interest rates, it would take much longer to accumulate a satisfactory nest egg The authorities believed that low rates would boost corporate investment. But White suggested firms were actually investing less. Furthermore, ultra-easy money was responsible for the misallocation of capital. Creative destruction was thwarted. 'It is possible,' White concluded, 'that easy money conditions actually impede, rather than encourage, the reallocation of capital from less to more productive resources.' By lowering the cost of borrowing, ultra-easy money provided an incentive for investors to take undue risks. At the same time, insurance companies and pension providers were struggling to cope with the low interest-rate regime. Given the low cost of borrowing, governments were unconstrained to run up their national debts. In the last analysis, easy money served only to postpone the day of reckoning. 'Aggressive monetary easing in economic downturns is not a "free lunch", concluded White, 'at best, it buys time to rebalance economies. In reality, this opportunity is wasted.' On Wall Street, they talked about 'kicking the can'."
Trechos retirados de "The Price of Time" de Edward Chancellor.
