So what does it mean that America’s central bank — the Fed — didn’t raise its basic rate yesterday? Absolutely nothing! As far as the real world is concerned, it doesn’t matter any longer whether the Fed exists at all except for a few minor purposes such as being a repository for the nation’s gold, to print new banknotes for old ones, and to keep a register of the title deeds of the government’s debts. Apart from a dozen or two security guards to look after the gold and half-a-dozen bureaucrats, it needn’t exist.
In other words, the Fed, along with the Bank of England, the Bank of Japan, and the European Central Bank are, in effect, redundant. They’re playing all sorts of financial games and saying all sorts of things but they’ve been redundant for a number of years during the period that the basic rate — a so-called interest rate, which it isn’t — has remained at zero. Of course, thousands of people employed by the Fed and other central banks don’t think their institutions are redundant! And Janet Yellen, the Chairman of the Fed certainly doesn’t think so, her job being one of the top status jobs in the world.
The fact is that, with the central banks having bought $15 trillion of government debts in the last six years since the 2008 debacle — and printing the money accordingly — plus large amounts of of additional credit created by investment banks and shadow banks between them by means of all sorts of imaginative documentation, the world’s economy is awash with the oil that lubricates the trading system, the real economy.
The surplus oil is at present stacked away in various places — such as unused money stuck in the central banks that the ordinary high street banks don’t want to borrow, share prices that are far too high, and huge numbers of collectibles such as ridiculous modern art and ‘assets’ such as town houses in the glamour cities. And, correspondingly there are massive debts all over the world — private and corporate — besides governmental debts.
Altogether, there’s something like a $70 trillion imbalance between governments in the world total trading balance sheet. Which is a nonsense, of course. It ought to be zero. If all the credits and debits were to be squared off then the world would find itself with a trading system (the real economy) at perhaps 70% or 80% (it can only be a guess) of its present size. In short, a severe depression that would cause revolutions in almost every country in the world.
So the process of readjustment had better be gradual while the world trading market sorts itself out. Janet Yellen has been unable to raise the so-called basic interest rate of 0% at the Fed because she and her 10 members of the Fed’s Open Market Committee are afraid of bringing an intermediate depression down upon the Third World countries.
Now that the advanced governments of the world have spent all the money and economic wisdom that they’re capable of, then they’ll just have to sit it out while the real world more gradually works through all the governmental, corporate and private bankruptcies that are necessary to get back onto an even keel. China no doubt will continue to sell in modest amounts every year all the US Treasury bonds it has bought, as will Japan no doubt, so this will help.
So the 0% basic rates of the central banks will continue as long as it takes until we get back to reality regarding money. If the advanced country governments don’t have the patience for that and try to interfere, once again, with artificial printing of extra money to create consumer demand, then it is more than likely that businesses, starting with the immensely large ones in the telecoms field will decide to impose a new trading currency of their own. After all, business created money in the first place. If there’s any possibility that governments will mess it all up again, then those institutions which actually create added value (money) had better take the initiative.