The money revolution being perpetrated by the world's central bankers: Don Pittis

The world's central bankers may have started a revolution more radical than anything everdreamed of by KarlMarx, and it's far from clear where it will all end.

By repeatedly cutting interest rates and buying up bonds, the world's central banks have beengnawingat one of thefounding pillars of capitalism, and so far, warnings have fallen on deaf ears. Effectively, central banksare changing the meaning of money and by doing so they are taking us into an unknown, and potentially destabilized, future.

• Canadian real estate appreciating at the fastest pace since 2006
• Carney predicts need for summerstimulus but holds rates steady in July

In Canada, the distorting effect of low interest rates has been obvious. On Friday, we learned ofanother stunning 12-month increase in the price of houses, which rose at the fastest pace since before the financial crisis.

More stimulus needed

Bank of England governor Mark Carney decidednot to cut rates last Thursday, but a day later his chief economistAndrew Haldanecalled for a "package of mutuallycomplementarymonetary policy easing measures" to fight off the damaging financial effects of Brexit.

"This monetary response, if it is to buttress expectations and confidence, needs I think to be delivered promptly as well as muscularly. By promptly, I mean next month," said Haldane.

The world's most powerful central banker, U.S. Fed chair Janet Yellen, has already putrate increases on hold for fear of growing international instability in the wake of the Brexit vote.

In Japan, fresh from an upper house election win,Prime Minister Shinzo Abe has called for a fresh round of stimulus to counter declining machinery orders.

"We are going to make bold investment into seeds of future growth," said Abe. In the now standard reaction to new government stimulus, stocks shot up on the news.

Pretend growth

The worry expressed by many smart people, including Robert Gordon, author of The Rise and Fall of American Growth,is that real growth has almost stopped. It's been replaced bypretend growth in the form of government fiscal and monetary stimulus.

"We must not assume an easy return to the long-lost era of dynamism," Financial Times associate editor Martin Wolf wrote last week in an article with the bleak titleAn end to facile optimism about the future."Meanwhile, the maldistribution of the gains from what growth we have is a growing challenge."

Those distortions ofmaldistributionhavebeen well documented as assets owned by people who can afford assets increase in value faster than wages.

But there are increasing signs that lower-for-longer interest rates, including the very strange impact of negative interest rates, are having a corroding effect on the very financial system the low rates are supposed to protect.

The latest victims of negative interest rates and the crashing value of bonds are the Italian banks, which until recently boasted of their good health. Even the German giant Deutsche Bank has begun to suffer, at least partly due to low and negative rates.

'Wolf by the ears'

But as we've seen right here at home, the central bankers have to quote an oldexpression from the American frontierI spotted the other day "a wolf by the ears." Letting go would be dangerous.

Even though Canada's chief central banker Stephen Polozknows low rates are driving up real estate prices in an unhealthy way, raising rates is out of the question. Even while Japanese and European central bankers know their actions may be leading to instability, just as Haldaneinsistedon Friday, stimulus is the only obvious answer.

The greater the threat to the financial system (Turkish coup, anyone?)the more likely central bankers will propose to create more money.

There is an odd thing going on in globaleconomics right now that'svery hard to grasp because it's outside our day-to-day experience, and it's contrary to the founding paradigm of conventional economics: the world's central banks are increasingly making moneyvalueless.

As I've mentioned before, it may bepossibletoadapt to a world where capital is free, but if so, the rules must change radically.

Among theconventions of economics, the ideathat money is in short supply is near thetop of the list. But if the value of money is zero or negative, many of the rules go out the window.

Free money

If governments produce all the money needed for finance, why should retired people expect interest on their savings? After all, interest is someone paying you for your scarce money. Why pay if it's not scarce?

Far more revolutionary, why should rich people those who have somehow captured large chunks of money profit from something that's being created, free, by governments, while so manyother citizensget a much lesser benefit?

For those of us raised to believe in conventional economics, the concept isdisorienting. My heart beats fast when I try to comprehend it.

There are strong rumours now that Japan is on the verge of takingone more step over this line, distributing helicopter moneyfree tocitizens.

Or maybe we are moving back to something like a potlatchsystem, a gift-givingeconomy practised by Indigenous peopleinthe Pacific Northwest, where the richgain status by givingaway their valuables.

In fact, the culture may be returning to its roots. Remember the boss of Gravity Payments whoincreased the salary of all his employees to $70,000 dollars? Well, the employees of the Seattle company announced last week they'd taken up a collection and bought the CEO his dream car, a brand new Tesla.

Follow Don on Twitter@don_pittis

More analysisby Don Pittis