Janet Yellen, the Chairman of the American central bank — the Fed — will be sleeping uneasily tonight. The latest index of Purchasing Managers fell to 51,.0 from 52.4 in January, the lowest since September 2009. She’ll be wondering how long it will be before she’ll have to reverse her 0.25% interest rate hike of a few weeks ago — and how she can explain why. Normal service is not being resumed after all.
The absurdity of it all is that real interest rates — as charged by banks or other lenders — continue as normal. Whenever money is lent against repayment in the future, risk is always involved. Ever since the Great Recession of 2008, whatever central banks say about the matter is of no importance. In fact, in some other countries — Denmark, Sweden, Switzerland, Japan and the 18 countries of the Eurozone — where central banks are trying to force high street banks to lend money by means of charging a negative interest rate then we’re now entering a period of total nonsense. Many commentators, such as Morgan Stanley, one of the less offensive investment banks of the past ten years has described the negative interest rates as “dangerous”.
There’s no fundamental monetary reason why central banks should exist. They only came into existence to get governments out of financial holes. If they continue to be as useless in five or ten years’ time as they are today then they might as well be allowed to die.