By CHARLES WHITE-THOMSON
“NANNY finance” — excessive quantitative easing and rate-cutting by central banks — has dominated the world for many years. This overly soft desire to step in and make things better has created a dependent generation of investors who rely on being bailed out.
The consequences of cheap money can be seen in asset bubbles across the globe — and the by-product is rampant inflation. Financial historians will not be kind when they review this period.
At the micro level we have a generation of investors with a skewed attitude to risk and a reduced ability to stand alone. Moral hazard is negative and encourages dependency and a desire to blame others for negative events.
Nanny finance hasn’t just been soft on financial markets; it can be seen in the “nanny state”. At the heart of it is a commendable desire to keep everyone safe from the trials that business cycles can create. There should always be a safety net for the most vulnerable, but it is misguided to try and do this for everyone, all the time.
The archetypal nanny was a figure of strength and consistency — firm but fair, your biggest fan and your biggest critic. A believer in moderation, focusing on today while keeping an eye out for tomorrow. One day Nanny will step back and their charge will make their own way into the big wide world, armed with character and the ability to stand on their own.
If only the central banks and monetary bodies had applied some of this traditional logic, we would have had a calmer world with less of cheap money’s highs and lows. Ark Innovation is a fine example of this.
Central banks (aka Nanny Finance) flooded the system with cheap money, and the poor management of inflation and the misguided view that this is transitional. The temptation will be to assume a more disciplined and austere attitude, and show that they can be tough.
Should this happen we are well on the way to policy failure, with a vulnerable consumer and economy and the preferred medicine of interest rate hikes. It is no time to shy away from difficult decisions and actions. This is all about firm balance and threading the needle of inflation management, interest rates and a leveraged world.
This will not be easy, and we should be prepared. Nanny McPhee has some good advice for Nanny Finance about balance and the role: “When you need me, but do not want me, then I will stay. If you want me, but no longer need me then I must go.”
Let’s hope Nanny knows best.
Charles White-Thomson is CEO at Saxo Markets UK