For good. It’s gone. Not coming back. If you are old enough you might remember a time when you sacrificed liquidity you got rewarded with bonus. We called that interest. The longer you sacrificed access to your funds the more bonus aka interest you would receive. And why wouldn’t you? The trade off of having access to your funds at any time came vs the downside of not being able to use the funds had to be rewarded to incentivise safers, bond holders, investors.
And now? What happened to interest? To understand the root cause we have to answer — How is money created. Easy, for every loan there is an equal amount of savings, right? Nah, bro. That’s unfortunately not how it works. If a bank loans you money it does not exist previously. How come? It’s an accounting trick. Once you sign the loan contract the bank makes two ledger entries. One the left hand side it creates an asset (the loan to you is an asset for the bank) and on the right hand side it creates a second entry with the same amount (the loan amount on your cheque account is a liability for the bank). That’s it. Nothing was there before your signature. Literally, money created out of proverbial thin air! Don’t believe me? Please read up on it. The central banks of the western world make documents available on their websites. No one does though. Too lazy.
And why is that important? Why bother? Thanks for asking. It’s the root cause of a lot of the evil in this world. The money system is broken. Government fiscal spending has to be refinanced by taxes and need to be sustainable? Nope. Banks have to backup loans with savings? Nope. Central banks are under democratic control by voters and governments? Nope. Central banks, banks and governments are beyond laws, legislation, moral boundaries, ethics. Mainstream economics has given them a blank cheque. All of them sitting in the same boat. Restricting spending and stop pushing up asset prices? That’s crazy talk. Why would anyone agree to this?
Coming back to the interest rate. If you print endless money and keep the wheels greased — what would happen if you need to start paying for the debts? They would need to create more money to pay interest on money they created out of thin air. The debts are insanely high, incomprehensible for mortals. Even a little interest would blow out and destroy any budget. It’s mathematically impossible. The US central bank has announced that zero interest rate is here to stay for at least another 3 years. In times where it’s impossible to plan 6 months ahead, this is a confession of failure. A confession to zero interest to infinity.
Is this sustainable? Dreamers of modern money theory believe so. Unfortunately the world is not a belief system. Reality will strike and lay open the broken system, swimming naked is only good until the tide goes out. Buy Bitcoin.