…What do these superlow, historically anomalous Treasury interest rates tell us? On that point, I’m reminded of the words of the great Austrian economist Ludwig von Mises, who wrote that “Public opinion always wants easy money, that is, low interest rates.”
Well, clearly, we have a government policy of easy money and monetary populism. The U.S. government — and its associated class of media and financial enablers — wants cheap interest rates to mask the true cost of horrific, irresponsible levels of federal borrowing and spending. Low interest rates are just grease for the country’s financialized treadmill to nowhere.
With Treasury bonds now offering superlow interest rates, it sets a funereal tone for interest rates through the rest of society. Why bother saving? Could it be that American money is “cheap,” in terms of interest because over the long term, it’s not worth all that much anymore? Do you see the issue?
Back when I took the basic survey economics course at Harvard — Economics 10 — I recall the late Otto Eckstein (who worked for presidents Kennedy and Johnson) saying that cheap money destroys capital. That was just a fundamental point. If you missed that, you failed the course.
In other words, we live in a capital-intensive world. Capital requires savings and investment. Yet low interest rates undermine people’s incentive and ability to save and invest. So low interest rates are — over any prolonged period of time — thoroughly destructive toward capital in many ways.
We could go back to von Mises, who stated, “True, governments can reduce the rate of interest in the short run. They can issue additional paper money. They can open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late, and to bring about a depression.”
Soon or late? My bet is soon.
I could carry on this economic discussion, but I’ve laid enough foundation. Let’s get to what von Mises called “real money” — that is, gold…
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