Politicians love to stand at a podium and scream about the cost of borrowing. The core of the populist complaint is always the same: money is too expensive, the central bank is choking growth, and citizens should be enjoying dirt-cheap credit.
It sounds populist. It sounds pro-growth. It is also an economic disaster. Learn more on a related issue: this related article.
Complaining that borrowing costs are too high misses the fundamental plumbing of modern finance. When you demand artificially suppressed borrowing costs, you are not asking for relief. You are asking for a structural wealth transfer from savers to speculators.
Let us dismantle the lazy consensus that cheaper money equates to prosperity. Additional reporting by Financial Times delves into related perspectives on this issue.
The Mirage Of Cheap Capital
Every time a political figure demands slashed benchmark rates, they treat money like a manufactured commodity whose price can be arbitrarily dialed down without consequence. They look at a mortgage rate or a corporate loan rate and see a tax levied by an out-of-touch central bank.
That view ignores reality. Interest rates are not a fee set by bureaucrats acting on a whim. They are the market price of time and risk.
When you artificially force that price below its natural equilibrium, you break the feedback loop of capital allocation. Imagine a scenario where a local bakery needs capital to expand. In a rational market, the owner must convince investors that their business model yields a return higher than the baseline risk-free rate of return.
Drop that baseline rate to zero, and the discipline evaporates. Zombie companies with zero cash flow suddenly find eager lenders. Speculative assets inflate into massive bubbles. Savers—the people actually deferring consumption and building real wealth—get punished with negative real yields on their bank deposits.
The Savers Penalty
Mainstream commentary treats savers as an afterthought, focusing entirely on the dopamine hit of cheap mortgages and corporate debt refinancing. This perspective ignores the millions of retirees and conservative capital allocators who rely on fixed-income yields to survive.
When the cost of borrowing is forced down:
- Bank deposit rates plummet below the true rate of inflation, quietly eating away at household savings.
- Pension funds find themselves unable to meet long-term liabilities, forcing them into hyper-risky equities and private equity schemes just to chase yield.
- Middle-class families trying to save a down payment for a home watch the target move further away as asset prices inflate faster than their savings account can compound.
Artificially cheap money does not create wealth. It redistributes it upward to asset owners while crushing anyone trying to build a financial cushion through traditional thrift.
The Real Cost Of Capital Distortion
Decades of suppressed borrowing costs have warped corporate behavior. Instead of investing in productivity gains, supply chain resilience, or genuine research and development, management teams used cheap debt to fund massive share buybacks.
Companies did not get stronger; they got leveraged. When the monetary tide finally receded, the vulnerabilities were exposed for everyone to see.
Fixate on the nominal cost of a loan, and you miss the structural inflation it triggers down the road. Pumping cheap liquidity into an economy with constrained physical output does not buy you more goods and services. It just bids up the price of the existing ones.
Stop crying about the price of money. Start worrying about what happens when money loses its meaning entirely.
