All the major central banks in the world outside China have been desperate in the last few years to raise their basic rates from somewhere near 0% to what they used to charge before the 2008 crisis — somewhere around 2% to 3% .
What central bankers are frightened about is that if this state of affairs goes on for much longer then people are going to ask: “But what is the purpose of central banks at all?”. Central bankers will, of course, reply very vigorously. Someone has to make sure that the amount of money that is printed is not too much as to cause inflation which, sooner or later, will cause overspending, hyperinflation and disaster with widespread bankruptcies.
Or they have got to make sure that enough money is printed in order to prevent deflation which causes people to postpone what they want to buy for a few years until the prices are even lower. And when there’s too little money available for further investment and the world falls into a Slough of Despond.
But who is to say that central bankers have ever got their basic rates right? In fact, they’ve rarely been able to do so for more than a year or two at a time. The only time all went all well was from 1990. And what happened then? After 18 years of this Goldilocks period, the Credit Crisis came out of the blue, stranding us but also telling us there was a great deal else that was going badly wrong.
But what’s so fundamentally wrong about where we are stranded now — totally out of control of our central banks? The world economy is still operating. China is still exporting consumer goods to those who can afford them and importing enough producer goods and services from the advanced countries to keep them going, too. As far as I’m aware, none of the major multinational corporations are making any specific complaints about the largely nullified central banks.
There are, of course, huge and serious faults with our monetary system which will have to be corrected sooner or later. Also, Second and Third World countries, failing from all the completely useless advice they’ve been given in patronising ways in the last 70 years, now need to learn what their only sensible strategies should be in the coming years — serious population reduction, funding of first class scientific 4esearch.
And, after all, despite the loss of credibility in central banks’ basic rates, all the rest of the world’s interest rates set by high street banks and other investors are proceeding just as they’ve always done. Remaining ‘stranded’ is not a bad place to be until a genius come up with a better idea.