ECB mulls rate cut for 2013

Photo from London Evening Post

There really is no escape from the damage of bad monetary policy, rising deficits and debt, etc. But this won't stop the European Central Bank, the ECB for short, from trying. It is considering a cut in its interest rate for next year, which goes to show that absolutely nothing has been learned since Greece started falling apart several years back.

Interest rates are not at a positive rate due to anyone's stinginess or greed. They are indicators as to people's preferences, whether for consumption, or investment. It is totally arbitrary to control rates downward by increasing money supply, which won't make the spending of money any wiser. On the contrary, resources will be wasted on things that otherwise people would have made do without.

Artificially lowering interest rates beyond market levels via inflation is precisely how the financial system became so unstable. It only favors those capable of acquiring the credit, and even then, due to later defaults, such benefits are not lasting. Meanwhile, more productive and sustainable uses of capital are shunned, not to mention that stable prices could have been more afforded by people regardless of their creditworthiness.

In addition, the ECB is considering a charge on banks that deposit their reserves with it, as a disincentive to central banking depositing. This goes to show that it is only a matter of time before "mopped-up" funds eventually will find their way to the economy and result in devastating price increases. 

Even though depositing at the ECB seemed to be a tightening measure, there is no viable way for the ECB to pay such deposit rates without issuing money out of thin air, and when the threat of hyperinflation makes paying for deposits an option no longer, such deposits will have to go elsewhere, specifically, in the 'real' economy.

So good luck, ECB. At least you have the Fed to enjoy the misery with.