Punters and pundits alike reacted to rising mortgage rates in the wake of Liz Truss’s mini-Budget with indignant horror. Leaving aside a market overreaction to fairly modest policy proposals, I wanted to tell aghast homeowners: "Well, what did you think was going to happen, people?" In 2008, the plunging of central bank rates to nearly zero was super-weird. (EU rates eventually going negative, meaning you paid banks to keep your money, was even weirder.) Flatlined interest rates were a response to an emergency. Yet when emergency measures continue long enough, they start to seem totally...

Punters and pundits alike reacted to rising mortgage rates in the wake of Liz Truss’s mini-Budget with indignant horror. Leaving aside a market overreaction to fairly modest policy proposals, I wanted to tell aghast homeowners: “Well, what did you think was going to happen, people?” In 2008, the plunging of central bank rates to nearly zero was super-weird. (EU rates eventually going negative, meaning you paid banks to keep your money, was even weirder.) Flatlined interest rates were a response to an emergency. Yet when emergency measures continue long enough, they start to seem totally normal, in this case inducing the bizarre expectation that borrowing money will be basically free, for ever.

Sorry, virtually free borrowing is intrinsically dysfunctional. It (surprise!) encourages more borrowing, so that central banks essentially solved a debt crisis with more debt. Combined with rampant money-printing, zero interest rates were a short-term expedient that made the big picture still worse. The longer zero and even negative interest rates persisted, the more deeply public and private parties sank into a debt trap — in hock for so much money that now even tiny rises in the cost of servicing that debt are disastrous for homeowners and governments both.

After all, with inflation raging towards or into double digits, why do you think central bank rates in the US (3.1 percent) and the UK (2.25 percent) are still so pathetic? Jerome Powell, the chair of the Federal Reserve, and Bank of England governor Andrew Bailey are up against the wall, damned if they raise rates and damned if they don’t. But these gentlemen helped create the quandary in which they’re mired. Negligible interest rates, which reward debtors and rob savers, thus transferring enormous wealth from the prudent to the profligate, should never have been sustained for an entire generation.

The Fed rate’s vertiginous plunge to 0.09 percent by December 2008 was a panic move. The desperation appeared to bear fruit. At least the international financial system did not implode, though we came closer to fiscal apocalypse than most of us care to contemplate. Briefly doing something “unprecedented” (it’s telling how tired we’ve all become of that word) to steady the ship was fair enough. Yet panic mode carried on for so long that it slid to business as usual.

You needn’t be a professional economist to solve this calculus equation. Over time, as money continues to be free and central banks keep magicking up trillions from thin air, money becomes disconnected from value — real products and services. This process soon approaches a limit. The limit is currency collapse. Steadily high inflation, few of you need to be told, is slow-motion currency collapse. (With a piddling average 2 percent inflation rate, the pound has lost 99.6 percent of its value since 1751 — but nearly all of that loss occurred since 1970.)

Right now, money throughout the world is rotting. We only have a “strong dollar” because, given slightly-higher-than-farcical US interest rates, investors in greenbacks can slow the rot a tad. With American inflation stubbornly over 8 percent, the dollar is still rotting, even if you can stick it in a whopping 3.5 percent interest certificate of deposit — something like storing your meat in a beer cooler, but not in a proper fridge.

Yes, dire unanticipated events can sometimes force authorities to announce that all bets are off, the old rules don’t apply, and necessity trumps principle. But accession to states of emergency risks their installation in perpetuity. Strong men often declare martial law during a crisis, but the crisis never officially ends, and martial law morphs conveniently into a bog-standard police state.

We’re seeing the same process play out with Covid. The US has robotically renewed its “public health emergency” every three months since January 2020, most recently just over a week ago — despite Biden’s declaration last month that the pandemic is over. Although (astonishingly) the UK’s 2020 Coronavirus Act was finally allowed to expire in September, No. 10 can always fall back on the 1984 Public Health Act, which justified all our beloved “non-pharmaceutical interventions.”

The WHO aims to codify these same diabolical “interventions” and get member states to sign up to a universal protocol for disease control that’s legally binding. The EU Commission released a document in September that extends the bloc’s commitment to the use of lockdowns and inane vaccine passports (Covid vaccines have no effect on transmission), while recommending that masks (also ineffective in preventing transmission), preferably of the most uncomfortable, suffocating sort, be brought back as a first line of defense this very winter. As coronavirus anxiety wanes, newly self-important public health officials remind me of Gerry Adams’s notorious whisper about the IRA: We haven’t gone away, you know.

Besides, a state of emergency isn’t merely the supposedly temporary imposition of draconian laws, but a state of mind — one to which we’ve grown altogether too accustomed. Note how seamlessly the hysteria over Covid has segued to hysteria over climate change. This never-ending sensation of peril grants government the implicit right to do anything to save the world.

As we’ve seen demonstrated vividly since March 2020, laws that protect civil liberties are fragile and readily overridden. Rescinding the laws of economics is proving more difficult. Lo, the fusty classicists were right all along.

  1. Give people the opportunity to borrow vast amounts of money for practically nothing, and lots of folks will take you up on your kindly offer — not least have-cake-and-eat-it politicians who want to spread manna on their constituents’ waters without taxing them to death first
  2. Concocting enormous sums from the ether, even via fancy legerdemain called ‘quantitative easing’, inevitably debases a currency down the line

It’s well established, too, that inflation, once entrenched, has a life of its own. Escalating prices and wages have already gathered sufficient momentum that tardy rate rises, which can take years to make an impact, may produce the worst of all worlds: ruinous, undeterred inflation; cripplingly high servicing costs for sovereign debt; and widespread personal and small-business bankruptcies. Whoops! Sounds like another emergency to me.

This article was originally published in The Spectator’s UK magazine. Subscribe to the World edition here.