The discrimination inherent in modern monetary policy

There is an excellent post today from the Cobden Centre entitled Sound Money is a Matter of Social Justice. For too long, the apologists for state policies have claimed the moral high ground and maintained the absurd belief that the state is necessary to help the “poor.” We have been told that easy money policies (low interest rates, loose mortgage policies and various other state interventions in the market) are necessary to help the “poor” (and “middle class”) reach their dreams of debt servitude, er, I mean home “ownership”, car “ownership” and various other kinds of “ownerships” that would more accurately be described as selling one’s soul to well-connected banks.

Easy monetary policy directly shares the blame for the current recession/depression, whatever. People alter their behaviours drastically in such an easy money climate. When interests rates are low, it signals that it is a good time to take out loans for various things, business expansion, mortgages, cars, etc. This situation is not sustainable and when the market correction inevitably comes, it will be severe. In a free market, falling or low interest rates would indicate a healthy level of savings, of which could be drawn on to take out loans, invest and increase productive capacity, etc.

In a centrally planned economy, the price of money is fixed by a central bank. We are sold the idea that it is in the interest of economic stability that central banks are needed. What a joke! In reality, huge banks and corporations are guaranteed a never-ending expansion of the money supply right into their accounts. They win, everyone else gets inflation.

Here’s a nice graphical representation of who this policy harms most, courtesy of the aforementioned Cobden Centre article:

The article goes on to explain the non-neutrality of money. Simply put, not everyone receives the newly expanded credit equally; this is the most sinister form of discrimination as it unjustly rewards the few at the expense of the many. As the article puts it:

These people are likely to be well connected socially, politically or financially. But this new credit cannot conjure productive resources out of thin air and, eventually, all it does is bid up prices having distorted the capital structure along the way. By the time the new credit reaches the least socially, politically and financially connected people it has declined in purchasing power by an amount sufficient to reflect its new found abundance relative to goods and services in the economy. Only the initial recipients benefited from the credit expansion.


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