For good. It’s gone. Not coming back. If you are old enough you remember: giving up liquidity earned you a bonus. We called that interest. The longer you went without access to your funds, the more bonus, aka interest, you received. And why wouldn’t you? Cash at hand any time versus cash locked away: the lock had to be paid for, to entice savers, bond holders, investors. Interest was the price of forbearance. You went without, and were paid for it.
And now? What happened to interest? To find the root cause, answer one question: how is money created? Easy, for every loan there is an equal amount of savings, right? Nah, bro. That’s not how it works.
If a bank lends you money, that money did not exist before. How come? It’s an accounting trick. Once you sign the contract the bank makes two ledger entries. On the left hand side it books an asset (the loan to you is an asset for the bank) and on the right hand side it books a second entry of the same amount (the loan balance on your current account is a liability for the bank). That’s it. Nothing was there before your signature. Money created out of thin air! Geldschöpfung, the Germans call it. Schöpfung is their word for Genesis.
Don’t believe me? Please read up on it. The central banks of the western world publish the documents on their websites. No one reads them. Too lazy.
Why does that matter? Thanks for asking. It’s the root cause of much of the evil in this world. The money system is broken. Government spending funded by taxes and kept sustainable? Nope. Banks have to back their loans with savings? Nope. Central banks are under the democratic control of voters and governments? Nope. Central banks, banks and governments sit beyond law, moral boundaries, ethics. Mainstream economics has given them a blank cheque. All of them in the same boat. Restrain spending and stop pushing up asset prices? That’s crazy talk. Why would anyone agree to that? Asset prices climb, wages don’t, losers keep losing. One side of that ledger wins. Become capital.
Coming back to the interest rate. If you print endless money to keep the wheels greased, what happens when the debts fall due? They would have to create more money to pay interest on money they created out of thin air. The debts are insanely high, incomprehensible to mortals. Even a little interest would blow up any budget. It’s mathematically impossible. The US central bank has announced zero rates for at least another three years. When nobody can plan six months ahead, this is a confession of failure. A confession to zero interest, to infinity.
Is this sustainable? The dreamers of modern monetary theory believe so. Unfortunately the world is not a belief system. Reality will strike and lay the broken system bare. Swimming naked is only fun until the tide goes out. There is a revolution underway. Buy Bitcoin.