What went wrong? All of those who grew up during the late sixties and early seventies can probably recollect when people earned on average 1/3 of the net pay (in real value) yet most families could afford to live quite comfortable on a single income They also had more leisure time, subjected to less stress and had an excess of disposable income to save. Interest rates on savings were high enough that savings could carry one through their golden years.
In contrast to earlier times, Marketing professional have conditioned us to spend and easy credit, has enabled us to surrender to our every whim. What we seeing occurring today is the logical consequence of our collective actions; it is simply payback time.
The Fed cannot raise interest rates without ravaging the already damaged US economy. It seems their choices are but two:
keep interest rate low and devalue the currency, or raise interest rates and purge American middle class.
The point is one can’t escape a failing system. Keep interest rates too low will especially with huge deficit spending force the US dollar downward in value. This will create inflation on any product or service imported into the USA and hurt the public anyways. Raise interest rates now will hurt those who borrowed way more money than they should have and can afford pay back. It will though stop or greatly reduce the nonsense we see today and of Reaganomics with its the 30 years of B.S.
The fact is the USA will have to raise interest rates to keep especially foreigners to buy their T-Bills. Unlike asking for your citizens to do a patriotic thing and buy T-Bills much like the USA and other nations did in the 30’s, foreigners only look at the return on investment. As they grow more and more scared of the USA defaulting they demand higher interest rates to secure the crazy borrowing the USA does (by the way: Canada ain’t no cup of tea either, $60B deficits will be our norm with our neo-facist govt. too).
Any nation who depends on heavy borrowing both govt and private sector to run the so called economy will have to follow suit and raise interest rates too. This will cause huge hardship on all of us even the well off but they are too myopic to see that yet, but it will be worse on people and companies who could not manage fiscal prudence.
Keeping interest rates artificially low in a era of massive government deficits and including personal and corporate borrowing will only make the pain worse in the end.
Four reasons why hyper inflation hasn’t hit the US yet
Everything we know about classic economic theory suggests the US economy should be experiencing Zimbabwe-like hyperinflation right now, thanks to the nearly $2.2 trillion the US Federal Reserve has pumped into the system.
But we’re not… yet.
Classic economic theory says that money supply can be used to stimulate the economy and our central bankers seem to agree. That’s why they’ve pumped more than $1 trillion dollars into the economy, engineered countless bailout bonanzas for zombie institutions, put Detroit on life support, and delivered a bunch of financial Band-Aids to the trauma ward — all in a desperate bid to make Americans feel better about the global financial crisis.
To their way of thinking, the trillions of dollars have been a success. That’s why any meeting of the Group of Eight nations looks more like a mutual affection society with central bankers eager to claim credit and backslap each other in congratulations for having avoided the “Great Depression II.”
But by taking the Federal balance sheet to more than $2 trillion from $928 billion 2008, they’ve created a situation that should have resulted in an epic inflationary spike to accompany the 137% increase in liabilities.
Yet that hasn’t quite happened.
1. Banks are hoarding cash.
Despite having received trillions of dollars in taxpayer-funded bailouts and lived through a litany of shotgun weddings designed to reinvigorate the shattered lending markets, most banks are actually hoarding cash.
You can read the rest of this story at Minyanville