Rewind. Flooding the world with cheap money

Central bankers and other policy makers are creating the conditions for another financial crisis. According to the website Investopedia, the task of a central banker is to oversee monetary policy, with the goal of currency stability, low inflation and creation of jobs.

After the 2008 global financial crisis, the central banks of the US, Europe, China and Japan have flooded the world with cheap money in an effort to crank up job growth and also to generate inflation; their fear is that the economies would enter a deflationary phase. Neither has happened!

The figures of job growth spewed out by the US Labour Department do not spell out that a lot of the jobs are low paying jobs, such as waiters or salesmen. These jobs go mainly to retirees, who are forced to work after retirement, because their retirement nest egg does not get them enough interest to meet expenses. As David Stockman points out in his column ‘The Central Banks War on Savers’, a $200,000 nest egg yields enough return, at today’s interest rates, to give one cappuccino at Starbucks!

Nor have the dollops of cheap money created by ECB’s Mario Draghi helped raise inflation (and stave off deflation), because the easy money has not gone into financing either consumption (to boost economic growth) or investment (to create jobs). It has, instead, gone into boosting asset prices, such as stock and commodity markets and real estate. These bubbles are bursting.

What’s even worse is that the Bank of Japan (BOJ) is using printed money to buy bonds and stocks. Can you believe that BOJ is in the top 10 shareholders in 90 per cent of Nikkei’s 225 stocks in its index?

Besides the central bankers, other policy makers have also passed laws which result in increasing labour costs. For starters, if a $200,000 retirement nest egg can get you only a cup of coffee every day, employees would need to save perhaps 100 times more. This is thanks to the central bankers’ asinine policy of penalising savers for the assumed benefit of consumers (which remains assumed, rather than reality). The employee will, thus, demand a higher wage, in order to save more.

In addition, legislation like the “Affordable Health Care Act” pushes up labour cost for any organisation employing more than 50 persons. Businesses employing fewer are thus reluctant to grow. Instead of expanding, and offering full-time jobs, they hire part-time. Or may be open in another name. Or outsource. Or automate. Thus creating fewer jobs, not more!

Because of rising labour costs combined with lower productivity of labour, companies are increasingly replacing humans with robots. Within 20 years, according to Digital Trends, five million jobs will be lost to robots in a wave of technological development known as the Fourth Industrial Revolution, in the fields of genetics, robotics, AI, 3D Printing and others.

China is actually increasing its number of robots, as part of a government plan to improve manufacturing productivity. Its population is aging so it can afford to. India’s is young and cannot afford to. We need to plan for future jobs, to meet the demands of a young population. We cannot have MPs who demand a doubling of pay even as they immaturely disrupt parliamentary proceedings.

The writer is India head, Euromoney Conferences

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