Jerome Powell came to power at the Fed with the determination to reverse the astounding errors of his predecessors, most especially Ben Bernanke who received the Nobel Prize for the dumbest central-bank policies since the Weimar Republic. Back in 2008, Bernanke pushed borrowing costs for banks to zero and held them there for years on end.
The policy was always absurd. Why can’t interest rates be zero? Because there is such a thing as the passage of time. Consuming in the present with resources stored up by others must always come at some cost. This is true whether money exists or not.
A super-simple example: Let’s say your bushel of blueberries costs me one egg today but I won’t have an egg until next week. The blueberries will cost two eggs next week. Why? Because consuming now and paying in the future always comes at a cost to the borrower and to the advantage of the lender. The lender can grant me charity but that doesn’t take away the price of time.
The entire yield curve as we know it today is nothing but an elaboration on that simple example. In normal times and normal assumptions, the longer the period of maturity, the higher the rate. But even at the shortest maturity term, the rate in a normally functioning market is always positive.
So for Bernanke to force a situation in which the passage of time costs nothing and is even negative is the equivalent to manufacturing heaven on earth. It is an illusion that cannot last. It also introduced horrible distortions into the production structure. Money and capital seeking return left the present and chased the future, which is why Big Tech and Big Media ballooned out of control, sucking away vast resources from plain savings, small business, retail, and other such normal things.
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