This is how “free money” leads to disastrous decisions. With the need for discipline eliminated, there’s no motivation not to gamble wildly, fund every special interest group’s demand, and grease the palms of every insider, every crony and every oligarch.
This is how a great nation will self-destruct. The only possible output of a system lacking any discipline is self-destruction.
Another way to put what Charles Hugh Smith is saying here is that when money is free, the expected return on investment goes to the prevailing interest rate, or zero. From Smith at oftwominds.com:
The only possible output of a system lacking any discipline is self-destruction.
Whatever is free is squandered. When water is free, it’s freely wasted. When electricity is free, there’s no motivation to use it wisely.
The same principle holds true for money. If money is free, or nearly free, there is no motivation to invest it wisely, or consider the opportunity costs of spending it versus investing it or preserving it as savings.
Money that can be borrowed for next to nothing is essentially “free” because the costs of interest are negligible. Money that can be borrowed in virtually unlimited quantities is also “free,” as whatever funds are squandered or lost to malinvestment can be easily…
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