Interest Rate Manipulation Fails

Interest Rate Manipulation is Income Redistribution
[courtesy Google Images]

^th Business Insider Australia

“On Monday [February 8^th], the benchmark Nikkei 225 index lost more than 900 points, closing the session at 16,085.44.  The 5.4% one-day decline was the largest since June 13, 2013 . . . .  Since January 29^th, the day the Bank of Japan adopted a negative-interest-rate policy, the Nikkei index has lost more than 10%.”

Since mid-December, when the U.S. Federal Reserve increased the U.S. interest rate by 0.25%, the U.S. stock market has also suffered a significant decline.

Japan lowered its interest rates to zero—and then to a negative interest rate—their stock markets fell.

The U.S. raised interests from 0.25% to 0.50%, and the US stock markets fell.

The world’s stock market indices are falling. Judging by the US and Japanese recent experiences with raising—and lowering—interest rates, interest rate manipulation is insufficient to overcome whatever forces are causing the market declines.

This implies that neither the Bank of Japan nor the Federal Reserve has any viable tools–including interest rate manipulation–that can reliably stimulate the economy and withstand the forces of economic depression.

QE (Quantitative Easing; the distribution of “free” currency to banks) in both nations has also failed to stimulate their economies.

What tools are left to “simulate” the economy except (allegedly) negative interest rates (NIRP)—and NIRP will almost certainly fail to have any positive effect other than to make people laugh or cuss.

NIRP is a fantasy or a fraud designed to encourage the public to have (false) confidence in the central banks’ ability to control the world’s economies.  NIRP is almost certainly a device whose primary purpose is to hide the fact that the central banks have lost their ability to control their economies and are just waiting for, and dreading, the moment when the world recognizes that truth.

“While concerns over the outlook for the global economy contributed to the decline, renewed strength in the Japanese yen . . .  was also a major factor behind the Nikkei’s decline.”

“Renewed strength in the Japanese yen” is evidence of deflation.

Deflation is a hallmark of economic depression.

Both the U.S. dollar and the Japanese yen have been growing stronger—which is evidence that the world’s #1 and #3 economies are in deflation and on the brink of, or perhaps already in, an economic depression.  And, so far, they’ve shown no tools able to prevent that deflation.

“While continued easing of monetary policy by the Bank of Japan, along with renewed global growth fears, saw yields on benchmark 10-year Japanese government debt fall below 0%, taking them to lows never witnessed before.”

“Lows” in Japanese bonds “never witnessed before” is surely bad news for Japan.  But will Japan’s misfortune also afflict the U.S. economy?

Anyone who supports the New World Order and Global Free Trade must also support further integration of the U.S. economy into the economies of other countries.  Insofar as the U.S. economy is integrated into Japan’s economy, there will be economic contagion between those two countries.  Thus, it appears that Japan’s economic depression can infect the U.S. economy with the same disease.

Insofar as the U.S. economy is integrated into the world’s, the U.S. economy can be damaged by economic contagion spinning off from other countries like Japan, China, and the EU.

Do we really want to be integrated into a world economy where the U.S. economy’s health depends on the health of foreign economies?  Isn’t our integration into foreign economies a little like contracting to take blood transfusions from a blood bank located in a gay neighborhood?

It may be that, formerly, the risks created by such contracts were “acceptable” insofar as we believed the central banks had the tools to quickly cure any transmissible diseases.  But as it becomes increasingly clear the central bank “doctors” have no cures for what currently ails our economies, do we really want to risk further economic integration?  Or should we opt for more independence and even economic isolation?

•  In the final analysis, interest rate manipulation is a means of income redistribution.  Income redistribution is a form of legalized theft, but it is is theft, nonetheless.

In a free market, interest rates are not controlled or mandated, but are negotiable.  In a free market, if you are a creditor with $100,000 to lend, you might want to charge 10% interest on your principal.  As a potential borrower, I might want to pay 2% interest to borrow your $100,000.  After some negotiation, I might agree to pay 5% and you might agree to accept 5%.  Assuming we were both fairly knowledgeable about the economy, that negotiated 5% might be a pretty fair interest rate.

If that 5% interest rate is too high (it should’ve been 3%), the foolish borrower overpays by 2% and the creditor gains 2% (over a “fair” 3% rate).  If the 5% interest rate is too low (a “fair” rate was 7%), the borrower pockets an extra 2% and the creditor loses 2%.  The object in a free market is to establish an interest rate for a particular time and place that’s fair to both sides.

Ideally, in a free market, both sides win.  The borrower wins by borrowing funds at a reasonably low interest rate.  The creditor wins by lending funds at a reasonably high interest rate.

However, in a manipulated (un-free) market, interest rates are arbitrarily set by central planners at the Federal Reserve.  If the interest rates are set to high, creditors win and borrowers lose.  If the interest rates are set too low, creditors lose and borrowers win.  When the interest rates are arbitrarily set by central planners, at least one side (creditors or borrowers) is guaranteed to lose.

We’ve had eight years of near-zero interest rates set by the Fed.  These near-zero interest rates were justified as a means to entice borrowers to borrow from creditors at unreasonably low interest rates in order to “stimulate” the economy.  Thanks to interest rate manipulation, if I want to borrow $100,000 and a a reasonable, free-market interest rate is, say, 5%–but the Federal Reserve has mandated that I only pay 2.5%–I am enticed to borrow the $100,000 because I know I’m getting the money cheap.  I also know (but don’t talk about it) that the creditor is being robbed by being forced to accept an interest rate that is so unreasonably low that the creditor is all-but-guaranteed to lose some of his capital.

This robbery of creditors is justified by the need for people to borrow more currency, so they can spend more currency, and thereby “stimulate” the economy. That might be a good rationale, but it can’t justify the theft that results when creditors are forced to accept unreasonably low interest rates and accede to being robbed by borrowers.

Our recent eight years of near-zero interest rate manipulation has not succeeded in stimulating the economy, but it has succeeded in causing the involuntary redistribution of wealth from creditors to borrowers.  That involuntary redistribution of wealth is, at bottom, theft.  Creditors have been robbed for the past eight years by the central planners’ imposition of near-zero interest rates.

Can America expect to come to a good end by legalizing the immoral and criminal robbery of creditors by borrowers?  Can the “end” (economic stimulation) really justify the “means” (theft by interest rate manipulation)?  As a people, do Americans gain more by being able to borrow currency at artificially low interest rates than they lose by ultimately realizing that their gains were achieved by government-sanctioned theft?

Can economic stimulation justify a loss of personal dignity and self-esteem?

Yes, you may have received an extraordinarily beneficial mortgage loan when you built your new house.  You might be proud to show off your new house to your friends and neighbors.  But when you look in a mirror do you realize that you’re “great deal” on the mortgage was achieved by robbing your creditor?  Do you understand that, by virtue of the government-sanctioned robbery, you’re a fraud?  You didn’t really deserve the new house you built.  You got that house, alright.  But you only did so by means of robbing your creditor under the guise of near-zero interest rates.

Like a Mafia crook using criminal gains to become a “legitimate businessman,” you know that however much wealth you’ve acquired, it all started with your complicity in the Fed’s criminal acts of interest rate manipulation.   Yes, you won the trophy–but you cheated to do so.  Some won’t care if they cheated, but some are sufficiently moral to be concerned by their complicity in interest rate manipulation and resulting theft.  I wonder if they’ll get over that concern one day, or if it’ll bother them for the rest of their lives.

Are the people of the nation well-served by knowing they’re a bunch of thieves?

If you’re prepared to rob your creditors by paying mandatory, artificially-low interest rates, what is your moral grounds for complaining if somebody else (say, government) robs you?  Once we start to accept involuntary-income-redistribution/interest-rate-manipulation, we sacrifice our claim to being moral men and women.  Can our economy withstand the knowledge that we have become a bunch of crooks, ruled by a government that’s composed of even more criminal?

•  I may have made too much of the immorality, guilt, and loss of self-esteem that flows from manipulated interest rates.

But this much is sure.  for the past eight years, near-zero interest rates have been robbing creditors.   Creditors are being pushed closer and closer to bankruptcy.   If we keep robbing our creditors, soon our creditors will be insolvent and there’ll be virtually no more loans to be found.  How can a debt-based monetary system and debt-based economy survive without creditors?

Borrowers may cheer for cheap interest rates that allow them to buy bigger homes for smaller monthly mortgage payments.  But, if the interest rate manipulation continues long enough, those same borrowers will bawl when they find out the creditors have been consumed and are gone.

Interest rate manipulation by central planners is theft.  Insofar as we tolerate mandatory interest rate manipulation, we tolerate and embrace theft.  Should we be surprised if our government turns out to be run by a bunch of laughing, grinning crooks?

Didn’t someone write that people get the government they deserve?

Did we earn a criminal government when we cheered for interest rate manipulation?