P.J. O’Rourke: Zero percent rates – Not only wrong, but evil
From P.J. O’Rourke in Stansberry Digest:
Oh, for the good old days when banks adhered to the “3-6-3 Rule” – pay depositors 3%, charge borrowers 6%, play golf at 3 p.m.
Instead, today, we have 0% interest rates, which are not only economically disastrous… they’re immoral.
On April 21, Porter wrote a brilliant essay on the damage being done to the global economy by 0% interest rates, reckless money printing, and “free capital.”
I’ve been pondering what Porter said ever since. It taught me a lot. It also made me think. If Porter doesn’t mind, I’d like to add my own two cents. (Which, with the worldwide inflation that’s about to explode, will be worth more like .0002 cents.)
The old-fashioned term for borrowing was “renting money.” And that’s the way we should start thinking about it again. A sum of money is a thing, a piece of property, like a house.
When the government decrees a 0% interest rate, this is exactly the same as the government forcing you to rent a house you own for nothing.
And what kind of tenant will you get for the price of bupkis per month? You’ll get somebody running a meth lab – if you’re lucky.
Of course, you still have to pay the upkeep on your rental property. In the case of money, this means paying the taxes on what you earned and saved so that you could have a sum of money to rent to someone.
Between the cost of “maintenance” on your money and the cost of inflation lowering the value of your money, what’s actually going on is that you’re paying money to have money borrowed from you.
Even mafia loan sharks don’t go this far.
And 0% interest rates hurt the innocent most – like our moms and dads. There they are laboring away for 30 or 40 years, scrimping and scraping by, dropping coins in the “swear jar,” setting a little bit of the paycheck aside every week, and putting their meager savings in the safest possible place – the credit union, the bank, or U.S. savings bonds.
Current yield on a Series EE savings bond? 0.1%. Mom and dad would be better off with their rainy day money tied up in a sock. Yes, they might get burglarized. But you can shoot a burglar. It’s illegal to shoot a governor of the Federal Reserve Bank.
What happens to mom and dad? They are forced to seek riskier investments in order to get any return at all.
There’s nothing necessarily wrong about us doing that. But it’s wrong to make mom and dad do it. They are the children of hardship and wartime. They’ve seen all the risk they need to see.
Mom and dad are risk-adverse. (Thank God… That’s why we’re still alive.) It was dad who nixed my plan to ski down Death Gulch on a pair of two-by-fours duct-taped to my galoshes. Mom stopped me from jumping out the attic window onto an old couch cushion on the driveway. And mom and dad acting quickly and in unison to prevent my attempt to use 25 cherry bombs to launch a coffee can into orbit.
Risk isn’t right for mom and dad. It makes them feel guilty and uncomfortable. It’s like serving roast beef to the parish priest during Lent.
Inflation is immoral, too. We readers of the Stansberry Digest are savvy about the varying value of money. We can formulate investment strategies to offset the dire effects of inflation, maybe even to benefit from them.
But what about poor people? Their only available investment strategy is to invest what little money they have in food and shelter. Inflation is brutal on the poor.
If you were walking through a poor neighborhood and saw a little girl with an ice cream cone, you wouldn’t take it away from her. I’m hoping our government wouldn’t take it away, either. But somehow, our government thinks it’s all right to bring the blow dryer of quantitative easing into that poor neighborhood and stand over the little girl with the hot stream of air from the blow dryer pointed at her ice cream cone until it melts away to nothing.
That’s a bad thing to do. And flooding the market with free capital is maybe even worse.
Free capital allows the marketplace to be swamped with business jerks. Some are incompetent. Some are corrupt. Many are both. Again, this isn’t a problem for us Digest readers. We’re smart. We’re well-informed. But what about people who aren’t as lucky as we are?
Free capital hurts the frail and the weak. It is they who will be cheated by shoddy products and services and quack investment pitches. We shouldn’t blame them for being cheated. Maybe they suffer from intellectual disability. What with the state of our public school systems in America, there’s a lot of intellectual disability going around.
The people who are harmed most by free capital are people who are operating at a disadvantage. Being kind to the disadvantaged is a core principle of morality.
You wouldn’t trip a blind man. But somehow, our government thinks it’s all right to go to the neighborhood where the blind man lives and take all the sewer grates off the storm drains and all the manhole covers off the manholes.
That’s an evil thing to do.
Next time you see someone who’s in charge of government monetary policy, take a close look at his pants cuffs. Is what you see peeking out from under them a cloven hoof?