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“Without the intervention of economic policymakers, interest rates would be naturally higher. That would increase the cost of borrowing for businesses and consumers, but there would be some offsetting economic benefits. Savers are getting screwed by the current monetary policy, and screwing savers is seldom a wise economic move.” — Robert Robb

Fiat money requires that everyone using the currency has faith in the government that issues it – faith that it will be well managed & carefully looked after.

That faith in the US dollar is being destroyed. “Helicopter Ben” is creating new money out of thin air at a staggering rate to lend to a government that is spending so far beyond its means it’s a joke. The US monetary base has doubled since 2007. Since the economy hasn’t doubled that means each dollar is really only “worth” about half of what it was 3 years ago (yes, that’s overly simplified).

In as much as we keep hearing about gold, silver & commodities rising in value, they’re reflecting the dilution of the value of un-backed paper money and it’s consequent reduction in purchasing power.

It’s inflation, but most people won’t see it as that until it starts affecting the prices of their everyday shopping. It’s coming. “Smart money” is converting their paper wealth into physical commodities that retain value, and the barbarous relic (gold) just happens to be one of the oldest, most durable commodities there is.

The case for higher interest rates by Robert Robb

Here’s a contrarian thought: What the U.S. and world economies need are higher interest rates.

Economic policymakers are obviously pushing in the opposite direction.
In the United States, the Fed is expanding the money supply by more than $2 trillion to try to artificially drive interest rates down.
In Europe, the attempt is to artificially manipulate the interest rates on sovereign debt in the euro zone.

Economic policymakers didn’t like it when the interest rate spreads on sovereign debt among euro zone countries began to widen. When Greece tottered on default, they bailed it out and established a fund to backstop sovereign debt within the zone. Ireland has already had to access the facility.

Savers are getting screwed by the current monetary policy, and screwing savers is seldom a wise economic move.

Higher interest rates on sovereign debt, in the United States and elsewhere, create pressure on governments to clean up their finances. Artificially low interest rates subsidize profligacy, just delaying the day of reckoning and making it more difficult to handle. Read the rest of Robb’s article at bottom.

Read Robert Prechter’s famous deflation survival guide, free! Here’s what you’ll learn:

What Triggers the Change to Deflation
Why Deflationary Crashes and Depressions Go Together
Financial Values Can Disappear
Deflation is a Global Story
What Makes Deflation Likely Today?
How Big a Deflation?
More

References

1. Robert Robb’s article

This entry was posted on Wednesday, January 5th, 2011 at 2:10 am and is filed under All Posts, Main Street. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

1 Comment

  1. January 9, 2011 @ 3:54 pm


    U got it!

    With the BLS crap numbers game to keep the CPI below inflation so not to pay any COLA and this Bernakapart financial general keeping rates at 0, while the banks get all the free money they need. why pay the silly savers any better rates than a lousy 1 %

    I used to be OK with just a 2% COLA and 4 or 5 % on my CD’s, now its a crap shoot to “contribute” to the economy.

    Posted by No Stocks 4me Cramer

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