Central Bankers on Inflammatory Drugs

Central bankers are guilty of GroupThink, meaning that they don’t think for themselves, but just follow the others like sheep.

When we came out of Covid, they were throwing petrol on the flames by what they call “Quantitive Easing”, which are just fancy words for buying huge amounts of government bonds to lower interest rates.

They appeared to believe that lower interest rates or zero interest rates would seduce companies to invest in factories and get consumers to buy more consumer goods and thus stimulate economic activity. Well, there can be no doubt that they succeeded with consumers who started to buy like no tomorrow once they were allowed to leave their homes.

However, the central banks were quite wrong about companies investing in factories and equipment to enhance productivity. That did not happen, although the Private Equity boys used low cost zero loans to buy shares and real estate. The real economy remained in a depressed state.

Investments remained low for the obvious reason that companies were uncertain about how the future would pan out.

The consumer boom, and President Putin’s invasion of Ukraine soon caused the price of food and energy to go through the roof. Central bankers collectively thought that the ballooning in these prices would burst soon enough, and that prices would fall rather quickly. That did not happen and central bankers sleeping at the helm just didn’t wake up until it was too late. Wages surged and companies put up their prices, especially those companies that were able to operate in sectors less open to competition.

Now, two years later, the sleepy central bankers are on psychedelic drugs, and a pouncing one over the other in a game called “let’s increase interest rates until companies die and consumers get exhausted.”

Interest rates have gone from negative rates to 4% to 5% during the last couple of years, resulting in hardship for many consumers with housing loans and other debts, and tougher times for companies that must increase raise prices to cover the higher interest rate costs of their working capital…

… and higher prices mean higher wage increases, and the spiral just continues.

Finland’s former prime minister, Sanna Marin, was quite correct when she noted that the speedy increase in interest rates has certainly been one of the factors that has been increasing the price of food and energy.

The most recent economic indicators, like bankruptcies, closed shops on main street, and in shopping malls are clear evidence to all of us that the downturn is already pounding down on us like a giant tsunami wave.

Don’t expect the central bankers to waver from their determination to kill inflation, because they won’t – they are all sleeping again at the helm.

… and this story does end here… some central bankers think of themselves as being holier than Zeus and other gods and want to be president of Finland!

Let’s hope that democracy can protect us from further GroupThink damage.

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