Interest rates

Realistic interest rates will save us, and we have a Deputy Prime Minister to thank for that

Thursday, October 27, 2022 2:51 PM

Last Thursday was as good a day as any to attend a networking lunch at the House of Lords. By the time we had moved on to the pudding, Deputy Prime Minister Liz Truss (Lost Trust) had resigned and the House was like a Bedlam of panicking men, running through the halls of entropic ‘power’.

So thank you to the organizers of the sustainable development event CC-Forum for the invitation, a reasonable price misunderstanding after my dazzling performance as moderator at their event earlier that week at the Dorchester.

Also, for an event focused on saving the planet, it was refreshing to see a crypto company involved as a main sponsor, a certain Wallexwhich I had never heard of before, but now I know… and so do you.

Now that the subprime is gone after a ridiculous 44 days of mismanagement, the crypto world is looking to supposedly crypto-friendly acting Prime Minister Rishi Sunak for a quantum of solace in this lingering crypto winter.

The signs are good. At least he’s modern enough to know about entrepreneurship, technology, and money, even if the latter comes from his birth and married family. In other words, I sometimes dress like him, but I wouldn’t dress like “Sub-Prime”, which I hope makes things clearer.

However, there is something else that could benefit crypto, the UK economy and beyond; namely, the eventual raising of interest rates to a reasonable level, albeit through a pandemic, war, broken supply chains, inflation and the subprime mortgage crisis of a woman mentioned earlier.

Since the depression of 2008 governments have printed money and imposed ridiculously low interest rates to keep themselves (and to a lesser extent their savings) afloat after the tsunami of the initial crisis and that is why we have all grown to love crypto in the meantime. Rarity is good, rarity is value. Printing money is obviously stupid.

When interest rates are kept low, credit is easy and more fools than usual have access to cash than reasonable interest rates would have prevented.

In his dense but quite brilliant book The price of time published four months ago, Edward Chancellor illustrates this maxim by following social interest rates from the reign of Hammurabi in ancient Babylon to the present day.

He posits that low interest rates can save governments, but in the long run they destroy generations and monetary systems because they do not encourage saving, the foundation of any society.

It shows how extremely low interest rates not only create asset price inflation, but are also largely responsible for slow GDP growth, rising inequality, pension crises and asset bubbles. such as house prices and their eventual collapse when the bubble bursts.*

The hyperbole and storytelling of recent UK interest rate hikes focuses, as everything seems to focus on how families are going to cope with these sudden increases, as if families were the only segment of the company that matters.

Conversely, and just as importantly, savers who have lost the value of their money, not because of inflation, but because of low, and sometimes negative, interest rates over the past 14 or so years, are being ignored. by the story.

Understandably, struggling families are a bad thing, but like any other entity, heads of families need to know when to budget for the bad times and the 80% of fixed rate mortgage holders will have enough time to figure out Plan B It happens. , go with it.

These savers are now reaping belated rewards for subprime incompetence and rapidly shifting their savings from bank to bank as easy access and yields from fixed-rate ISA accounts increase and, for once, they can look forward to the likely announcement from the Bank of England. an increase of 0.75% next week.

It could go either way for crypto, although this writer is more confident than ever.

It could be argued that the asset bubble created by low interest rates included Bitcoin and other cryptos, but the rules are a bit different, including true scarcity and only the brave can handle crypto volatility. Bitcoin will be fine.

That’s why we like to be pioneers. Arrows in the back etc while others doze.

Realistic interest rates offer a more egalitarian society, a sharp drop in house prices and reasonable returns for brave fellow investors… …not random borrowers. They can also expect volatility like crypto.

Woe to any improvement in the reputation of former Deputy Prime Minister Truss, but sometimes dumb luck is all there is in the universe, dumb luck rhymes for that matter.

We should be thankful for our kids that reasonable interest rates are back…and probably will be for some time to come.

I’m sure Sub-Prime will be happy to take credit for it…if you know what I mean?

His retirement from public life is assured. But his legacy will be a terrible irony. And so on.

* he is very tired at the moment

Monty Munford is a tech journalist and advisor for privacy organization DeFi Siena Network and over the past decade his consultancy has helped over 40 companies raise/exit totaling £1.4bn. He is also a keynote speaker/host/moderator/interviewer and has spoken at over 200 global events interviewing the likes of Tim Draper, the late John McAfee, Sir Tim Berners-Lee, Steve Wozniak (twice in Beirut and in Vienna), Kim Kardashian (once in Armenia), Amitabh Bachchan, Ghostface Killah, ZZ Top, Guns N’ Roses and many more. He was previously a weekly technology columnist for Forbes in New York, the Telegraph in the UK and continues to write regularly for the BBC. , The Economist, The FT and… City AM.