It was an ironic event to hear one senior central banker from the Bank of Finland announce this week that she was worried about how high interest rates may cause homeowners with large housing loans to face difficulties!
The reason for this announcement just shows you that the central bank has no idea what it’s doing or that is simply negligent.
Do central bankers have no idea what they’re doing?
The only reason why interest rates have gone up is because the central bank here and elsewhere around the world have been increasing interest rates rapidly after Mr. Putin attacked Ukraine. This little man’s war has Increased the price of food end of oil. The price of food has gone up because Ukraine ‘s deliveries of grains and other food products has being slowed down by bombs missiles and mines. Another reason is that transporting food has also increased in cost because well the products cost so much more. Raising interest rates to deal with this type of inflation is crazy because it has nothing to do with demand. The idea being that if you increase the influence of interest rates you will cut demand. Here it’s just a question of higher prices being caused by reduced supplies, and increasing interest rates only increases inflation! Even ordinary folk understand this but this appears to be beyond the comprehension of central bankers who sit in golden towers Mercedes and private jets most of the time. The second reason why interest rates
… Or are they negligent?
Well before Putin’s brutal war, right after the financial crisis in 2008, And later in the years following the COVID crisis, central banks came up with the idea that the best solution to revitalize the national economies is to reduce interest rates to zero or even below zero. This was a foolish experiment that led to an incredible rise in house prices and the prices of investment assets like shares and bonds. At the same time governments paid out large sums of money to companies and to voters to offset the loss of jobs, and the lack of demand for consumer goods. When COVID finished, the central banks still kept interest rates very low which was totally crazy because people spent money on restaurants and in shops like there was number tomorrow and, guess what, prices went up very quickly. And still the dopes at the central banks did not increase interest rates until it was far too late, and the damage had been done by Mr. Putin central banks were certainly negligent in reacting too slowly. Not only were they negligent in lowering and raising rates but they are negligent in allowing banks to grant large loans to people who can’t afford them.
Your correspondent is of the opinion that the current batch of our central bankers are not the right type of people for the job. In fact, since most of them have only held jobs that are basically political in nature, it is inconceivable that they are much use anywhere else… Not one has done a job in the real economy.