Letter: Interest rate doesn’t matter if consumers aren’t in the mood

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The agony of interest rates (FT Money, FT Weekend, November 6) is a fashionable affliction among financial scribblers.

I understand that Merryn Somerset Webb is trying to give the best advice to investors in the current difficult circumstances, but maybe we should broaden it and look beyond monetary considerations? Somerset Webb highlights the lack of demand. Fairly good too, but you have to look at the whole Thatcherite period to understand why.

Canadian-born American economist John Kenneth Galbraith is the best in this regard. Mood is everything. Individuals and businesses are confident whether or not they are spending, borrowing, or lending, and regardless of where the interest rate is at any given time. For nearly four decades, we have been sold harshly with silly amounts of credit (largely for bricks and mortar) as well as stagnant wages, unaffordable rents, job insecurity and insufficient social security.

It goes without saying that this is a combustible mixture which has only exploded and collapsed.

Galbraith again: “Since monetarism is only half a philosophy, it can never work only half”. In his book The economics of innocent fraud (2004), he also wrote that since the creation of the American Federal Reserve in 1913, it “has a record against inflation and especially against recession of a deep and unrelieved inconsistency”.

David redshaw
Gravesend, Kent, United Kingdom

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