DELIVERING: Bank of Japan governor Haruhiko Kuroda addresses a news conference after his first monetary policy meeting in Tokyo on Thursday. Picture: REUTERS
Bank of Japan governor Haruhiko Kuroda addresses a news conference after his first monetary policy meeting in Tokyo. Picture: REUTERS

I HAD sort of made up my mind that there was nothing left to write about on quantitative easing. I expected that by now we’d be over it — done with it, enough already, lesson learnt. I thought that when interest rates passed through zero that would be a turning point, that they’d find some other strategy, that they’d have worked out that this kind of medicine just isn’t working, isn’t going to work.

What’s more, this "bietjie-bietjie" business is surely a waste of time — 25 basis points here, 50 there. If you want to use interest rate cuts as an economic stimulus, then do it properly the first time. There is little point in continuing to take one Panado after another when the cure requires Schedule 4 drugs.

However, just when we thought it was safe to get back to normal (whatever that is), along comes Bank of Japan governor Haruhiko Kuroda and says he sees no limit to how far down into negative territory he is prepared to take interest rates in his quest to get to a 2% inflation rate. Japan is not alone. Switzerland has negative rates, the German two-year bond yield went negative last week for the first time, the Swedes have negative rates, and this is old hat for the European Central Bank (ECB) — the pioneer of what one day will be reflected on as the negative interest rate era. Everyone seems prepared to adopt ECB president Mario Draghi’s approach of "whatever it takes".

If you’ve never lived through a time of deflation, it’s weird to understand. In the world I grew up in, inflation was always the enemy — now all these clever central bankers want to make it their new best friend. Why? Or, as Ralph often says, way into a long lunch, "What’s going on?"

The truth is, deflation is horrible for economies, and don’t the Japanese know it. Imagine a world in which you expect the price of things, all things, to go down in future. Sounds fabulous, but it isn’t. If you think you can buy something cheaper next year then why would you buy it now? If everyone thinks that’s going to happen, then nobody spends any money, so there’s no growth in gross domestic product. In fact, it declines, and that’s called a recession, so we don’t want that.

The trouble is that these interest rate stimulus strategies don’t operate in a vacuum. Central banks are everywhere, and controlling them to suit your particular country agenda is like trying to squash puff adders into a cake tin — dangerous for even the most fearless. Every time one trading partner affects the exchange rate through monetary policy intervention, the country on the other side of that deal can retaliate with the same weapon.

The real causes of this global slowdown have little to do with interest rate policies. The collapsing oil price has more to do with lowest-cost producer politics than supply-and-demand economics. Sanctions lifted against Iran, Saudi Arabian production costs compared to its adversaries — these are the new influences in play. The slump in commodities is ultimately a consequence of politics. It is not as though the supply of precious metals or iron ore have increased in their natural abundance.

Truth is, China’s ambitious, state-assisted growth policy in the past decade, in its self-evident quest to become a world economic power (which it has), has either stalled or didn’t have the momentum suggested by the published growth statistics in the first place. So, there’s a global economic slow-down in the real economy that is finally being reflected in the nervousness, volatility and uncertainty in the financial markets. Even stock markets are experiencing year-on-year negative returns. Unheard of, it won’t last! It could.

You can’t go around charging people to look after their hard-earned cash, surely? In the good old days, people invested their savings on retirement, to live off the interest. Sorry, no more. Interest rate policy-driven economic stimulus was meant to chase money out of the financial markets and banking system into the real economy. It hasn’t. In fact, the opposite has happened. The financial circles (upon circles) of influence chose not to risk the money they were gifted. They didn’t care how low the returns, or how much the price, for asset-value preservation — there is just no way they were going to risk the money out in the real economy when they could circle it among themselves. The emerging markets, an obvious case for growth, didn’t attract new investment — in fact, what little they had there, they’re taking back, back to the sanctity of the bubble baths they know and share.

Of course this is going to backfire. The economic divide has widened, not narrowed, as was intended. That in itself is not sustainable, the numbers can’t tolerate such a skew. Asset bubbles are not good. Asset bubbles burst, but never mind that mess. The problems, which have far-reaching consequences, start long before that. People who get used to living in these bubbles will go to great lengths to perpetuate them. That can start a series of irrational decisions that are not based on sustainable economic logic. Overvalued assets are trouble. Take overvalued listed companies as one example.

It all starts with that warm and fuzzy feeling you get when your shares keep going up, defying fundamental logic. Who’d want to be the spoilsport to face it, to say it, no matter how obviously inflated the rating is? The trouble is, unless you feed that hungry price-earnings multiple with organic growth, it’s likely to catch up with you. Acquisitions, made with expensive (highly rated) equity as the currency, as the only growth strategy, usually compound the problem. When hype acquires hype, we all know it will be found out. But what else are you supposed to do when cash is the enemy?

When companies with overrated shares are done with acquisitions, they resort to buying back their own shares. That’s nothing more or less than a blunt admission that management can’t find anything else that’s earnings-enhancing to do with the money (the money you gave them to put to work). When companies start share buy-back programmes, sell them back whatever they’ll buy.

In a zero-value money world, other metrics emerge. We’ve all sat in awe of (and paid for) the "never, never, but you never know" promises — growth strategies based entirely on the everlasting acquisition of clients, not profits.

To a point, these strategies are valid and valuable, but if everyone is counting clients at any cost, then when do we reach the saturation point?

Consumers can only divide their wallets into so many little pieces.

There may be asset classes that are less subject to misguided overvaluation, but these same drivers of bad investment decisions, and even misrepresentation and account-fiddling, apply to all over-valued assets. Negative yield money will not solve real economic woes, but a lot of clever people’s actions suggest otherwise. We’ll have to wait and see.

• Barnes is South African Post Office CEO