Tuesday, February 7, 2012

Atlanta Jeff On Why Low Interest Rates Are Bad For America

As most of you know, we continue to see extraordinarily low interest rates.  I asked Atlanta Jeff, who has an MBA from Wake Forest, why this is a problem for the economy.  His bullet points include:

  • With rates at near zero, people lack incentive to keep deposits in banks, as they earn nothing.  While a few of us look at dividend yielding investments, most of the masses just spend.
  • Most of the masses need to spend because in the real world, they are:
    • 1) not seeing their wages increase,
    • 2) two income couples are becoming one income couples, and
    • 3) prices are going up (in spite of what the "inflation" number is). 
  • The things that drive the aforementioned three points are businesses are hesitant to hire in the USA, diminished agricultural production and continued uncertainty in the oil markets.
  • Also, since the PRC and others are slowing down purchases of our bonds and our esteemed leaders in Washington cannot seem to address the fiscal goat rodeo that we are in, the Fed is buying up our paper to prevent a wholesale collapse in demand for our paper.  To purchase said paper, the Fed just prints more currency.
  • The Fed, with the Treasury, is tightening regulation on the big banks because they are getting the blame for the 2008 mess.  They are forcing the big banks to have higher reserves.  Since US paper is considered acceptable for the reserves, the banks, individually and through the Fed, hold a bunch of this paper.  Since it earns no interest, they don't pay out interest.  Also, because of tighter regulation, they don't lend money either.
  • So, all of that being said, the middle class can neither earn on their savings nor get a loan to start a business or improve their lot in life.

Are You Watching Doomsday Preppers?

New season on NatGeo.  Check it.

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