www.spectator.co.uk Open in urlscan Pro
2600:9000:2057:2000:b:9722:3a00:93a1  Public Scan

Form analysis
0 forms found in the DOM

Text Content

SubscribeNow just £1 a week
Coffee House Politics Economy World Culture Life Magazine


 1. Coffee House

 1. 
    
 2. Coffee House


LIONEL SHRIVER


THE LOOMING MONETARY APOCALYPSE


BUBBLES POP — IT'S WHEN, NOT IF

16 February 2022, 12:13pm

Text settings
CommentsShare


OK, I finally watched Netflix’s Don’t Look Up. Surprisingly, I enjoyed it —
especially before its effective subtitle for us thickos, THIS IS A METAPHOR FOR
CLIMATE CHANGE, YOU F-ING MORONS. Otherwise, the film might have playfully
dramatised the more general phenom of fiddling with celebrity bodices while Rome
burns.

The comet at which I’m looking up could arrive far more immediately than
perilous global warming. Money is in trouble. I’m not only referring to a
cost-of-living crisis. Money itself is in trouble.

Let’s contemplate, to coin a phrase, a basket of deplorables. US inflation just
hit 7.5 per cent, the highest in 40 years. UK inflation, now 5.5 per cent and
the highest in 30 years, is expected to reach 7 per cent by spring. EU inflation
is 5.1 per cent. All these indices are headed in one direction. Inflation is
often described as a tax, but I have a better word for it: stealing.



Central banks will deliver us, right? Because controlling inflation is their
main job, right? Except this cavalry is riding to the rescue on those miniature
ponies that come up to your waist. The US Fed’s lending rate is still 0.08 per
cent, believe it or not. Its fiscal Grand Poobahs plan to convene at their
leisure a full month from now, perhaps to raise the rate to a giant 0.5 per cent
(or perhaps not). By the end of 2022, the Fed may raise rates all the way up to
1.5 per cent! Dizzying, that. Although having raised its rate to that towering
0.5 per cent more quickly, the Bank of England is likely to make the same
miniature-pony increases as the Fed.

Capitalism plain does not work at zero or near-zero interest rates

If you believe that central banks are genuinely independent of government, you
probably still imagine in middle age that the packages under the Christmas tree
when you were a kid were put there by a fat geezer in red felt and not your
parents. Keeping interest rates absurdly low while allowing inflation to soar is
such a commonplace of monetary deviousness that it has a name: fiscal
repression. Heavily indebted governments adore inflation, though politicians
will never say so in public; it so magically melts the debt that behind closed
doors US Treasury Secretary Janet Yellen must be doing a little dance.
(Unfortunately for Rishi’s two-step, much of UK debt is inflation indexed.) Only
fiscal repression dissolved the UK’s post-war debt, a whopping 250 per cent of
GDP.



Debt, then, is our next deplorable. Having doubled in the past ten years and
quadrupled since 2005, the US national debt just crossed $30 trillion — a nice
round number that’s pleasantly easy to remember, much like ‘130 per cent of
GDP’. Take advantage of the mnemonic convenience while you can. With the
American government’s annual budget deficit pushing $3 trillion, those numbers
won’t sit still for long, especially if Joe Biden ever passes his Build Debt
Bigger bill. As for the UK, the British state owed 104 per cent of GDP almost a
year ago; now the national debt is higher still. Globally, the entire world is
indebted on the same scale as post-war Britain: 256 per cent of GDP. The last
deplorable might seem unlikely. On the face of it, recent losses
notwithstanding, the American stock market is such a dazzling rags-to-riches
fairy tale that it seems almost too good to be true. Easy to forget that ‘too
good to be true’ actually means ‘not true’.

The US has been enjoying its longest bull market in history. The Dow streaked
from a low of about 6,500 in 2009 to a peak of 36,799 this January, thereby
multiplying in value by between five and six times in 13 years. Are all these
companies making that much more stuff? The S&P’s wonky average price-to-earnings
ratio — real earnings per share — suggests not. Surging stock prices have become
dislocated from piddling (or sometimes nonexistent) real-world profits.

The FTSE has been dumpier, which may make British investors lucky. American
investors have been lulled into imagining that markets only go up. But
historical perspective can be bracing. The Dow didn’t recover from its 1929
crash for 25 years. The index also stayed basically flat for another 25 years,
between 1960 and 1985. The only bull market comparable to today’s lasted nine
years in the 1990s, and didn’t that end in tears.

Worse still, leverage — borrowed money in the market — has skyrocketed. Having
doubled since the March 2020 crash, debt-based investment in US stocks has
multiplied by five times since 2009 — precisely when interest rates were slammed
to zilch and more or less stayed there. There’s clearly a direct relationship.
When money is free, why not borrow to the hilt, throw it into stocks and make a
fortune? But in any sudden market decline, leverage is an accelerant — forcing
loads of investors to sell shares to cover their debts, and what’s gone up must
come down very quickly indeed. If a comet hits the Dow, the blowback could send
European trainers and family photographs into the stratosphere, too, just like
the droll apocalypse in Don’t Look Up.

Capitalism plain does not work at zero or near-zero interest rates. The practice
enshrines moral hazard, rewarding chancers while punishing the prudent, and it
creates destabilising economic distortions. Conducting this unprecedented
‘experiment’ for most of the past 20 years, central banks have been pressing a
pillow over rates while allowing bubbles to form in housing, commodities and
stocks. The whole reason finance employs the metaphor ‘bubbles’ — lately,
‘superbubbles’ — is that they pop. The splatter is never pretty. The Fed and B
of E have facilitated wild government spending of inflationary funny money,
while forcing small-scale savers to put their precious assets at risk in
unpredictable shares. (Remember our sexy friend Tina? There is no alternative.)

Central banks are now deliberately debasing our currencies, thus eroding the
wealth of not merely billionaires, but ordinary workers and retirees. Never mind
growing your nest egg; the ugliest discovery on finally putting aside a little
something is how hard it is to keep.

This article appears in this week’s issue of The Spectator, out tomorrow.

Written byLionel Shriver

Lionel Shriver is a columnist at The Spectator and author of We Need to Talk
About Kevin, among other books.

CommentsShare

Topics in this articlePoliticsMoneyEconomy


READ NEXT

Trending
Steerpike

David Lammy’s second job thousands
Exclusive
0
Steerpike

David Lammy’s second job thousands
Exclusive

Happy register of interests' day! Commons sleazebusters marked Valentines' day
yesterday by quietly releasing an updated list of MPs and what they've been
declaring. There's plenty of fun stuff there: Carlton plotter Will Wragg got a
handy £5,000 donation from his gentleman's club of choice while both Lib Dem
leader Ed Davey and Labour MP Grahame Morris were embarrassingly forced to make
belated entries on various undeclared interests.


Also in Politics
Robert Peston

What is Boris’s partygate defence?
0
Robert Peston
What is Boris’s partygate defence?
Also by Lionel Shriver
Lionel Shriver

Kamala Harris and the problem of affirmative action
From the magazine
0
Lionel Shriver
Kamala Harris and the problem of affirmative action
From the magazine
Latest
Mark Galeotti
Putin has created a Schrödinger’s war in Ukraine
0
Mark Galeotti
Putin has created a Schrödinger’s war in Ukraine


MOST POPULAR

1
Jane Stannus
Trudeau’s totalitarian turn

Jane Stannus
Trudeau’s totalitarian turn

Jane Stannus
Trudeau’s totalitarian turn

2
Freya India
What does Gen Z have against motherhood?

3
Stephen Daisley
P.J. O’Rourke: the finest satirist of his generation

4
Mark Galeotti
Putin has created a Schrödinger’s war in Ukraine

5
Elizabeth East
Prince Harry’s ‘Americanisms’ are no such thing

2
Freya India
What does Gen Z have against motherhood?

3
Stephen Daisley
P.J. O’Rourke: the finest satirist of his generation

4
Mark Galeotti
Putin has created a Schrödinger’s war in Ukraine

5
Elizabeth East
Prince Harry’s ‘Americanisms’ are no such thing


COMMENTS

DON'T MISS OUT

Join the conversation with other Spectator readers. Subscribe to leave a
comment.

Subscribe Try a month free


NOW ONLY £1 A WEEK FOR A WHOLE YEARNOW ONLY £1 A WEEK FOR A WHOLE YEAR

Plus get your first month free and without commitment. Cancel any time.

RegisterSubscribe
Register3 articles a monthSubscribeTry a month free
Already registered? Log in


Useful links
Advertise with us
Sponsor an event
Submit a story
Cookie preferences

More from The Spectator
Spectator Australia
Apollo Magazine
The Spectator Shop

About us
About The Spectator
Contact & FAQs
Privacy & cookies
Terms and conditions
Jobs and vacancies
Site map

Subscribe
Subscribe today
Sign up to our emails
The Spectator Club

Useful links
Advertise with us
Sponsor an event
Submit a story
Cookie preferences


About us
About The Spectator
Contact & FAQs
Privacy & cookies
Terms and conditions
Jobs and vacancies
Site map


More from The Spectator
Spectator Australia
Apollo Magazine
The Spectator Shop


Subscribe
Subscribe today
Sign up to our emails
The Spectator Club






Hidden Article

Press again to continue 0/1
Our site uses cookies. By using our site you are agreeing to our cookie policy.
Find out more.
Manage cookies
Accept & close
×