If inflation is a disease, then interest rates are the cure. This is the general belief, and that is the simple reason central bankers across the globe are raising interest rates. Like a sponge sucks in water, interest rates help suck in excess liquidity. But then, who put all of this excess liquidity into the system in the first place? Sadly, it is us. Over the past three or more decades humanity decided to pursue growth over everything else and thus the universal, unwritten understanding was to follow a concerted policy of maintaining interest rates at abysmally low levels based on the assumption of inflation being below worrying levels! We experimented with “helicopter money” an outcome of pursuing a policy of Quantitative Easing to combat the threat of anticipated low growth. Many European economies went to the extent of implementing negative interest rates (which means you had to effectively pay the bank for keeping your money) while the US and UK maintained interest rates at near zero levels. Conversely, this implied that the threat of inflation was non-existent. We appeared to have baited the thief, or so it seemed!
Two years into the present decade and this belief has changed. The Russia-Ukraine tension was just what gave inflation the thrust it needed. Food and energy prices soared as did the price of metals, and before we realized it bankers were announcing unprecedented rate hikes every alternate month. We were smitten without realizing it. Rates on mortgages as with fresh borrowings witnessed an increase. Prices of essentials zoomed, travel continues to grow expensive and simply stated, we were experiencing an exorbitant cost of living. But this time around, despite all of the rate hikes, the pace of growth has not slowed as in the past. Job creation continues unabated coupled with productivity at very high levels, indicating that the expedited pace of economic expansion has not abated!
Bankers have been unleashing the best weapon at their disposal (interest rate hikes) to curb inflation – the thief, who prances around, unrestrained. Unleashing the power of his most unassuming weapon upon all humanity, he gleefully watches as the world speaks of his exploits everywhere. Deriving sinful pleasure from the woe he metes out, he robs us. In broad daylight, in clear sight, right under our surveillance cams and on our watch! Most of us turn a blind eye, choosing to remain oblivious to what’s happening around us while the rest of us derive peace from the picture of “collective suffering”.
