Quote of the Day: Monetary Policy Makes People Excited to Destroy their Wealth

For over three decades, the interest rate has been falling. This causes all asset prices to rise. Rising asset prices incentivize people to consume their capital (as I’ve written in many articles). In short, it’s a process of converting someone’s wealth into someone else’s income. The owner of the wealth would never consume it, but the recipient of income is happy to consume most of it. 

Everyone has seen traders and money managers driving expensive cars and dining in high end restaurants. There’s nothing wrong with making a lot of money and spending it. The problem I am describing is not that they make a lot of money, but that the money they make does not come from producing anything of value. It’s other people’s life savings that they are driving and eating.

This is the difference between monetary policy and tax or regulatory policy. Monetary policy makes people excited to destroy their wealth. There is no other kind of government intrusion in the market that sets off such a feeding frenzy of self-destructive behavior.

How does it do this? It makes it profitable to do so. Why does someone hand over his wealth to someone else for consumption? He buys an asset in the hope that it will go up further in price. So long as asset prices are rising, people exchange their capital for a chance to win cash in the falling interest rate game.

Most people would say that the problem is when assets fall again. They miss the point. The destruction occurs when the price is rising, and winners are spending their profits which are others’ accumulated savings. The accounting catches up eventually when prices fall back down, and then losses are taken.

This excerpt is from an article entitled “What’s Different about Monetary Policy?” written by Keith Weiner, president of the Gold Standard Institute USA in Phoenix, Arizona, and CEO of the precious metals fund manager Monetary Metals, published at the CobdenCenter.org

Update: Sorry for the small font. No matter how I try to increase the size of the font to normal, it reverts to the smallest.