Interest rates have been near zero since the recession of 2008.
That supposedly to stimulate the economy.
However, aside from a stock market bubble again, not sure we have a much stimulated economy.
We have a false low on the unemployment rate, while the the true percentage of the labor force working is the lowest in almost 40 years!
Moreover, manufacturing is down almost 40% from the 1979 peak with a loss of over 7.2M jobs.
Commodities are at firesale prices as demand is sluggish and there is short-term oversupply.
And innovation is facing a global slowdown.
So people are out of work, we’re not making things, demand is depressing prices, and even ideas are few and far between–not too rosy a picture, regardless of what some politicians may have you believe.
Let’s not forget that we have an over $18 trillion federal debt, and this is projected to grow ever greater as we borrow to fund social entitlements such as social security, medicare, etc.
In this scenario, why would the Federal Reserve ever want to raise interest rates?
Well, if they don’t raise rates, then they can’t lower them later again when the economy really stalls out and goes into deep recession.
Hence, this is seen as a tool for their financial toolkit–and if there are no tools with which to manipulate the economy, then there is no need for a (neutered) Federal Reserve.
But think for a second what happens when the Fed raises rates, it’s going to slow the economy even further than the chug chug chug economy that we are already dealing with.
Maybe even more important, it will raise the amount of interest payments we must folk over on the trillions of dollars of debt we owe.
Simply put, when we raise interest rates, we pay more interest on our already astronomically high national debt, and this pushes our national deficit up even higher as we borrow more to pay the interest on the previous debt.
If you did this with your credit cards, you’d probably be looking at the equivalent of debtor’s prison sooner or later.
Rather than feed the Fed’s toolbox with interest rate bumps and drops, why not keep rates low as long as they can stay low, reducing our interest payments, and curtailing our national deficit and debt.
What about the stock bubble…that’s a lesson investors will be learning about in their own good time–it’s the stock market, stupid. 😉
(Source Photo: Andy Blumenthal)