When I was about 5 or 6 years old, my mother told me, with a sigh, that the rich get richer and the poor get poorer. When I asked her to explain to me how that worked, she couldn't. All that mattered was that we were poor, Ireland was in a recession and the future looked even less rosy than the terrible reception on our black and white TV.
If you have a 5 or 6 year old, go and grab them right now because I'm about to explain one of the ways rich people get richer.
Welfare
We all know that most unemployed people receive welfare. I say most, instead of all, because I've been unemployed a few times and only received welfare once (the first time) and I can at least confirm that there are people who don't qualify for welfare because of their immigration status, personal wealth or, you know, reasons. Because!
However, there are forms of welfare that are given by the central bank to those who have spare money lying around. For what reason? Because they have spare money lying around. That's how the World works!
Okay, I realise that I may already have lost the 5 and 6 year olds in the audience, but I hope that the grown ups can hang in there a little longer.
W4E
Welfare for Elites (I've made up the term and the acronym, W4E - please spread it around like teenage wildfire) comes from two directions at the central bank.
Why do central banks pay this interest? It's not like they're incentivising the commercial banks to remain as customers because... it's the central bank - they have no other option but to keep their money in those reserve accounts. The only reason for having this is to enable the rich to get richer.
What about the second form of W4E that's paid out by the central bank? Well, this one is a particular pet hate of mine - bonds.
For reasons that haven't existed for decades, governments believe that they need to borrow money so that they can pay for things. They 'borrow' money by selling securities (we'll just call them bonds here, though) to a select group of banks who can then sell them on to anyone who wants them. And you'd better believe that people want them!
Poor people don't get to share the love because they don't have spare money lying around. So, the gap between rich and poor widens. Inequality growth marches on. And thanks to inflation, low wage growth, increasing rents (yes, yes, that's part of inflation, but it's frightfully important!), etc., the poor really do get poorer.
Is This The Natural Order?
Central banks don't need to pay interest on deposit accounts or savings accounts. In fact, the central bank deliberately manipulates the money market to keep the interest rate above zero. So, without their interference, no one would have any reason to buy bonds (just as the government has no good reason to sell them) and your mortgage (or your landlord's mortgage) payments would be lower.