Douglas Carswell's Blog

Interest rates must rise

Four years after the credit crunch hit, interest rates look set to rise. Ouch.   

If only rates had been kept modestly higher over the past decade or so, we perhaps might not be in such a mess - or about to experience quite such painful consequences. 

For the past couple of decades, central bankers have viewed low rates as the answer to just about everything.  Yet it was that glut of cheap money that fuelled the credit boom. Because the credit pyramid central and corporate bankers built was not matched by someone else’s savings – or deferred consumption – it inevitably meant a crunch.

As if that wasn’t bad enough, keeping rates low since to boost consumption penalised savers and favoured debtors. Four years on, I think it is fair to say that a low rates policy hasn’t exactly solved the shortage of credit.

Interest rates must inevitably rise. The pain will be all the more intense precisely because they were kept so low for so long. 

Perhaps it is time for us to rethink the role of central bankers in the economy, and ask if the wise men on the Bank’s Monetary Policy Committee have been really so wise. Can centrally planned monetary policy be any more successful than any other kind of central planning? 

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