01/08/2025
For half a century, central bankers have been performing what can only be described as monetary theater.
The ritual is well known: raise interest rates and the economy supposedly cools; cut them and, like Lazarus, growth miraculously returns from the dead.
This catechism has been repeated so faithfully that it’s treated as economic scripture, inscribed in policy handbooks, echoed in the financial press, and imbibed by investors with the devotion of medieval pilgrims sipping holy water.
But like many long‑held articles of faith,
this one crumbles under historical scrutiny.
Richard Werner, hardly a fringe figure, given that he coined “Quantitative Easing”, has been pointing out the obvious for decades: banks are not the sober intermediaries they pretend to be.
They do not patiently shuttle capital from Victorian savers to bold entrepreneurs.
They create money ex nihilo. A loan approved is new money conjured; a loan repaid is money extinguished.
That, not the minute adjustments of central bankers’ hands on the monetary tiller, is what truly drives an economy.
Interest rates, then, are less a lever of control than a pageant of reassurance. Japan tried near‑zero rates in the 1990s, and the “lost decade” stretched on.
The Federal Reserve pushed rates to the floor after 2008, yet credit creation barely stirred.
Even when Europe crossed into the surreal realm of negative rates, the lending bonanza policymakers promised never arrived.
In some cases, perversely, raising rates has fattened bank profits and increased lending.
And yet, the faith endures.
Speculative bubbles swell and burst, small businesses are starved of credit, and central bankers, like high priests in bespoke suits, step forward to bless the faithful with solemn pronouncements that they remain firmly in command.
If one truly wishes to divine the future of capitalism, one would do better to avert one's gaze from the high altars of the Fed and the ECB.
Watch instead the movement of credit itself.
There you will glimpse the next crisis, or, conceivably, the next improbable miracle, being silently engineered long before our modern monetary clerisy notices the storm.