We have seen currency wars. Countries try to depreciate their currencies in the race of export.
We have seen zero or negative interest rates, notably in Japan and the euro zone. The ECB already applies negative rates on banks’ cash deposits. In 1995 the Bank of Japan (BOJ) lowered its main interest rate to 0.5 percent. Rates have never been higher since. Earlier this year it adopted negative interest rates on certain bank deposits and had yields on its benchmark 10-year bonds fall below zero. And experts said this trend could extend for several years.
A recent Barclays’ study finds that real equilibrium policy rates are near-zero across the developed world and may need to fall further below zero to become sufficiently accommodative.
The only exception in the developed countries is the U.S. The Federal Reserve raised rates last December for the first time in a decade but is unlikely to continue at the pace it intended back then.
Judging from these trends, money appears to be the last thing you need in an economy. Is that true? If it is true, then why is the world economy still stagnant after all these depreciations and lowering interest rates? And what is the disadvantage of depreciation and negative interest rates? The major pitfall of this kind of fiscal and monetary policies is the exploitation of labor. For a regular worker, he or she sells his or her labor or services for money. Investors, if short of their own capital, then borrow money to provide goods or services by building their businesses. So when you put your money in a bank with negative interest rates and the currency you are paid for your work is depreciating, it means the money you earn is getting less and less by the minute and your labor in the past is worth less and less by the minute as well. So it is basically taking by eminent domain.
I am not saying that the governments are conspiring against their citizens on purpose. The dilemma central bankers are facing is that they are competing against one another. They have difficulty in maintaining the value of money if others are not doing the same around the world. In the end, with the governments waging this kind of zero sum game, the general public basically throws in their hard work for nothing. That is why there is increased inequity and a widened wealth gap.
Fiscal and monetary policies are actually easy ways out for the governments. They only need to increase or decrease the numbers. Of course, it takes a lot of deliberation to determine the numbers. However, compared to policies that can in effect increase people’s wealth and wellbeing equitably, these are purely board rooms’ board games.
As I have said repeatedly, do not get obsessed with positive growth in GDPs. They are purely numbers. Governments need to focus on what the goods and services are really in need in this time and age. Money is not in and of itself merely currency, but it also reflects the value of human labors and services. By depreciating it and lowering interest rates to the advantage of investors, the value of human decreases and the workforce only becomes poorer and poorer with time. With an ever increasing poor population, the world order as we see fit today will face incessant uprisings that will bring catastrophes to the world eventually.