Prior to the information age and the rise of central banks, interest rates were determined by market forces. In a nutshell, traditional economic theory viewed interest rates being set at the level where the return an investor required for the loan of its funds equaled the rate a borrower was prepared to pay to use same funds. If a young family wished to take out a mortgage for a new home, for example, the supplier of the mortgage (a bank) used to consider the credit-worthiness of the borrower (their ability to repay the loan) and set the interest rate accordingly. Unfortunately, this system led to gross injustices. Those individuals with little or no income (especially people of color and undocumented Americans) were refused loans or else charged exorbitant rates of interest. Thankfully, the world has moved on, as we explain below.
Due to advancements in our understanding of economic forces and markets, interest rates are now exclusively determined by the Federal Reserve. The Fed, as it is commonly referred to, is an entirely public body, owned by the government, whose goal is to serve the people. The role of deciding the exact rate of interest on virtually all securities is the personal responsibility of Janet Yellen, the chair of the board of governors. It is the actions of Yellen and her predecessors that have kept the world economy on a sound footing and, indeed, saved us from near-disaster in 2008.
Given the outstanding job Yellen has performed so far, many accredited experts are asking now whether the scope of her intervention should be widened to include public stock markets. In the past, the actions of greedy speculators has too often led to market crashes. In times of market turbulence, individuals and their families have seen their life savings literally wiped out due to speculators driving down share prices. There is a heightened risk also that Vladimir Putin could hack into trading systems on Wall Street and cause market meltdown. Whilst we have benevolent investors like George Soros and Goldman Sachs to advise the Fed on policy decisions, the advent of new risks means we need to take much firmer action.
An advanced draft of one excellent proposal hit the Accredited Times desk this week. Under this proposition, Janet Yellen would have two further roles:
- To set the bid-offer spread for all listed companies on the secondary markets on a daily basis
- To determine the value of companies being introduced on the primary markets for capital raising purposes
The finer details of how exactly Yellen would set share prices are still being thrashed out. We can say, however, that weight will be given to important considerations such as:
- The amount of CO2 produced in the company’s operations
- Diversity in the company’s workforce
- Investment in LGBT+ initiatives in the workforce and wider community
- Trading with hostile/enemy nations (e.g. Russia) would reduce the price
- Community outreach programmes
We welcome this proposal, which we believe will provide much needed stability to the world’s markets as well as providing a guaranteed ‘floor’ to share prices.