Douglas Carswell's Blog

Low interest rates will not fix the economy

Low interest rates have helped cause the West's economic malaise. They will not fix it.

If the "experts" were right and monetary stimulus was the way to get us growing, where's the growth?

Instead, artificially low rates encourage over consumption, too little production and too little saving. They produce malinvestment, with the low price of credit causing entrepreneurs to think of as being viable schemes that were never going to fly.

Instead of allowing that malinvestment to unwind when the credit crunch first struck, rates were cut even lower, with even more candy floss credit pumped into the system by the central banks. This is why almost everything done by Western policy makers since 2008 has made things worse.

It also explains why the Western malaise continues. Eventually policy makers will no longer be able to keep on throwing cheap money and credit around to try to prop things up. A great unwinding of all that malinvestment - and, tragically, plenty of perfectly good investment - is coming.

Eventually rates will have to rise - and not just in France. The pity of it all, we will then say, is that rates were not raised gradually years before.

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