In Axel Merk’s opinion, the zero interest rate policy is bad for everyone – except maybe populist politicians.
“We believe the key problem many countries have is debt,” writes Merk, in his latest newsletter titled “Merk Insight: All Bad at 0% ?”
“I allege that if countries had their fiscal house in order, they would rarely see the rise of populist politicians.”
It is Merk’s belief that the zero interest rate policy provides a key ingredient that allows such politicians to rise and thrive.
“When problems persist for many years the public demands new solutions,” he writes. “But because monetary policy is too abstract of an issue for most, they look for solutions elsewhere, providing fertile ground for populist politicians.”
Merk names a few prominent political figures that he believes have thrived from the public’s frustration with the status quo: “Presidential candidate Donald Trump; Senator and presidential candidate Bernie Sanders; Greek Prime Minister [Alexis] Tsipras; Ukrainian Prime Minister [Arseniy] Yatsenyuk; Japanese Prime Minister [Shinzo] Abe; and most recently the new leader of U.K.’s Labor Party Jeremy Corbyn.”
“And what do just about all politicians — not just the ones mentioned above — have in common?” Merk asks. “They rarely ever blame themselves; instead, they seem to blame the wealthy, minorities or foreigners for any problems.”
The Fed has maintained the near-zero rate policy it put in place almost seven years ago. Despite the heavy speculation that the Fed might move in September, it decided against a rate hike – citing “developments abroad” and the downturn in China’s financial markets and economy.
There are two more Federal Open Market Committee meetings, in October and December. The next meeting will be held on Oct. 27-28.
It’s Merk’s opinion that more political instability will be nurtured if the economy and continues on its current path under the zero interest rate policy.
“The [zero interest rate policy] allows governments to engage on spending sprees, such as a boost of military spending Prime Minister Abe might pursue,” Merk writes.