Realistic interest rates will save us, and we have a sub-Prime Minister to thank for it
Last Thursday was as good a day as any other to attend a networking lunch at the House of Lords. By the time we had moved on to pudding, sub-Prime Minister Liz Truss (Lost Trust) had resigned and the House was like a Bedlam of panicking men, running through the corridors of entropic ‘power’.
So, thanks to the organisers of sustainable development event CC Forum for the invitation, a reasonable quid pro quo after my dazzling performance as the moderator at their event earlier that week at the Dorchester.
Moreover, for an event that focuses on saving the planet, it was refreshing to see a crypto company involved as the main sponsor, a certain Wallex, which I hadn’t heard of before, but now I do… and so do you.
Now that sub-Prime has departed after 44 ridiculous days of mismanagement, the crypto world looks to the allegedly 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 of entrepreneurship, technology and money, even if the latter comes from his birth and his married family. Put it like this, 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 may benefit crypto, the UK economy and beyond; to wit, the eventual rise of interest rates to a sensible level, albeit through a pandemic, war, broken supply chains, inflation and the previously mentioned one-woman sub-prime crisis.
Since the 2008 depression, governments have printed money and imposed ridiculously low interest rates to keep themselves (and a lesser extent, their economies) afloat after the tsunami of the original crisis and that’s why we all learned to love crypto in the interim. Scarcity is good, scarcity is value. Printing money is obviously stupid.
When interest rates are kept low, credit is easy and more-idiots-than-usual are granted access to money on tick that sensible 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 tracking societal interest rates all the way back to the reign of Hammurabi in ancient Babylon through to the near-present day.
He posits that low interest rates can save governments, but in the long-run it destroys generations and monetary systems because it doesn’t encourage savings, the bedrock of any society.
He shows how extremely low interest rates not only create asset price inflation but are also largely responsible for slow GDP growth, rising inequality, pensions crises and asset bubbles such as house prices and their eventual collapse when the bubble bursts.*
The hyperbole and storytelling of recent interest rate rises in the UK focuses on, as everything seems to focus on, how families are going to cope with these sudden rises as if families are the only segment of society that matters.
Conversely and just as importantly, those savers who have lost the value of their money, not by inflation, but by low interest, and sometimes negative, rates over the past 14 years or so, are ignored by the narrative.
Naturally, families struggling is a bad thing, but like any other entity, the heads of families should know when to budget for the bad times and the 80% of mortgage-holders on fixed-rate deals will have long enough to figure out Plan B. It happens, deal with it.
Those savers are now reaping belated rewards for Sub-Prime’s incompetence and rapidly shuttling their savings from bank to another as easy access and fixed-rate ISA accounts’ yields head upwards and, for once, they can look forward to the Bank of England’s probable announcement of a .75% hike next week.
This could go either way for crypto, although this writer is confident as ever.
It could be argued that the asset bubble created by low interest rates included Bitcoin and other cryptos, but the rules are a little different, not least true scarcity and only the brave can handle crypto’s volatility. Bitcoin will be fine.
That’s why we love being pioneers. Arrows in the back etc while others doze.
Realistic interest rates offer a more equal society, a steep fall in house prices and some sensible returns for those other brave people, investors… … and not chancey borrowers. They can also look forward to volatility like crypto.
Woe betides any uptick in reputation for ex sub-Prime Minister Truss, but sometimes dumb luck is all that exists in the universe, dumb luck rhymes btw.
We should be thankful for our children that reasonable interest rates are back… and are likely to be so for some time yet.
I’m sure Sub-Prime will be happy to take credit for it… if you know what I mean?
Her retirement from public life is assured. But her legacy will be a terrible irony. And so it goes.
* it’s being heavily punctured right now
Monty Munford is a tech journalist and an advisor for the DeFi privacy organisation Sienna Network and in the past decade his consultancy has helped more than 40 companies raise money/exit for a total of £1.4 billion. He is also a keynote speaker/emcee/moderator/interviewer and has spoken at more than 200 global events interviewing figures such as Tim Draper, the late John McAfee, Sir Tim Berners-Lee, Steve Wozniak (twice in Beirut and Vienna), Kim Kardashian (once in Armenia), Amitabh Bachchan, Ghostface Killah, ZZ Top, Guns N’ Roses and many others.He was previously a weekly tech columnist for Forbes in New York, the Telegraph in the UK and continues to write regularly for the BBC, The Economist, The FT and… Morning Wire.