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We should have begun slowly raising rates in 2001, limiting debt after the business cycle ended. High interest rates do many good things for a society. We fear high interest rates because we think our economy needs to grow all the time, to avoid pain -- and we know that growth and high interest rates can't go together. This is true. But growth is always periodical. We must plan for this reality, not for the fantasy of perennial growth, which makes the interest rate cycle a potential monster instead of the savior that it is. Yes, the perpetual growth model is a fallacy, a fantasy. Time to wake up.
We have been on (the monetary equivalent of) morphine since 2001. We are mostly addicts. Our entire way of life is wrapped up in the morphiine lie being protected by the FED-mafia -- they are protecting us and themselves -- if the wall of water hits, our lives unwind, but so do the lives of many of those at the top also. How much pain can we endure; and how much chaos can they endure? If the tsunami hits, the FED is out.
If the FED continues to walk the path they are walking, we go into negative interest rates, and then all hell breaks loose and we are drowned in a tide of defaults and debt destruction. If the FED raises interest rates now, then the tsunami comes more quickly. I see no way out of this tsunami. 2001 was the time to confront the end of expansion -- and we lied to ourselves, and cheated, and tricked, and usurped, and deviled, and devaluated and que'd and zirp'ed and did whatever we could to (steal) borrow money from the future so we could continue to lie to ourselves and avoid the TRUTH which is quite simply: in a boom and bust economy you have to have the courage to take the bust (the DEFLATION) if you want to have the joy of the boom (the iNFLATION). Inflation is not a statistic of monetary abberation. INFLATION is the Boom Cycle, the Business Cycle, whether it is drive by salary and price inflation (which shows up in the CPI) or by DEBT growth (which does not show up in the CPI). The economy INFLATED from 1983-2001. It was supposed to start DEFLATING from 2001 (getting rid of our debt so we could inflate again) -- but we tricked it. But now look at us. We're not looking so good, with all our tricks. We have egg on our faces. And we have a LOT MORE DEBT now than we did in 2001, when we were supposed to start emptying out.
Helicopter drops won't work. Nothing will work except a massive deflation that will threaten our very existence, as it did 1929-1947. We have to impode out (global) debt bubble. That is the only thing that will fix the problem. But, it will create new problems, won't it?
The lesson: don't trick yourself as a nation, as a globe. If it sounds too good (debt is not a problem, debt is good, there is no such thing as too much debt), then it is too good. Don't lie to yourself unless you want the devil to appear and take everything away from you.
Sorry. It's long and dark. But I do think that more and more Americans are starting to realize how much trouble we are in.
Location: Was Midvalley Oregon; Now Eastside Seattle area
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I'd would raise taxes instead.
Everytime taxes got cut, we just reinvested in equities.
2001: recovery from DotCom/Tech crash. Taxes cut.
2002: Bush43 decide to go into Afghanistan to seek out BinLaden. Taxes cut again. Stock market falling. Interest rate falling faster.
2003: Interest rate continue falling. We borrow 90% of cost-of-attendance to private college for son. Use the 4% EE bonds to pay interest on student loans at 3%. First signs of NoJob-NoDoc-NoDown mortgages. Bush43 starts Iraq war. Stocks recover +10% and we are paying 0 taxes.
2004-06. Salad days of Interest rates. Student loans get down to 1%. We are still paying no taxes. While Wars are costing 7 Billions/week.
etc
YMMV
There is no such thing as a business cycle. The term itself is a leftover buzzword from olden times when stab-in-the-dark types saw ebb-and-flow cycles in various natural systems and decided they must prevail within economies as well. They were wrong. If there is a natural state to an economy, it would be slow, steady growth based on population and productivity increases.
If we take a longer view, we can interpret the interest rates of the late 70s and 80s as historically high & out of the ordinary.
In any case, they are low right now, but we may not see interest rates like the 80s again without massive inflation. As of now we have acute inflation in certain sectors -- health care, tuition, and housing in about half the country -- but generally speaking cpi is reasonably low. And with housing it's because housing starts fell to century-level lows because of the crisis. We are still at 1990 levels of housing construction even today, so it's no wonder rents & prices are increasing.
Both Yellin and Bernanke before her are on record saying they'd like to have raised rates earlier. But congress should have been doing more stimulus, particularly employment based stimulus. They haven't. They do nothing, in fact. So the Fed is providing the stimulus. They don't particularly want this role but were forced into it.
Moderator cut: quoted post
I have decades of education and experience as a practicing professional in the field. The notion of a business cycle has been dead for even longer. There are just three things that most economic variables can do over time -- go up, go down, and stay about the same. Countless hours and untold sums of money have been invested in trying to discover inherent cycles underlying these sorts of things, so far with no sort of success at all.
Last edited by yellowbelle; 08-29-2016 at 11:47 PM..
Reason: Quoted post has been moderated.
If we take a longer view, we can interpret the interest rates of the late 70s and 80s as historically high & out of the ordinary.
In any case, they are low right now, but we may not see interest rates like the 80s again without massive inflation. As of now we have acute inflation in certain sectors -- health care, tuition, and housing in about half the country -- but generally speaking cpi is reasonably low. And with housing it's because housing starts fell to century-level lows because of the crisis. We are still at 1990 levels of housing construction even today, so it's no wonder rents & prices are increasing.
The issue with consistently low rates is it breeds unintended consequences. Some of the main ones are absurd asset price valuations which leads to absurd and unsustainable housing price rises that slow the economy not encourage it, low capital investment, misallocation of capital and resources, cash hoarding, and decreased investment income.
There are a lot more reasons to raise rates than just inflation. But onto inflation, if housing, oil, and medical expenses weren't nerfed than inflation would be much higher than it is officially. It is time to get an independent agency to measure these since the government's numbers are toyed with to make things appear as they want and not as they are. We already have invisible hyperinflation in housing, education and cost of healthcare. CPI is purposley designed to ignore this.
If they raise rates, recession will follow. No thanks. I can only imagine what our rental market crisis will become if another recession hits.
If they raise rates full blown deflation and depression will follow, the tsunami comes more quickly. It may bring down the entire system with it. So what? We created this mess and this zombie economy, we lied and cheated, we deluded ourselves that we can avoid pain, that all those monetary tricks and artificial low interest rates can work. We are 16 years late raising interest rates.
Our only medicine is higher interest rates and massive defaults and bankruptcies. That is the only way out of this mess that we have created for ourselves. Only way that can bring normal and organic economic growth one day, nothing else will work and can't work.
I know, most of you live in denial and can't accept this fact. What is next, should we try QE4 after QE1, QE2, Q3 didn't work. Should we try NIRP after ZIRP didn't work? How long our insanity will last.......until we self destroy ourselves and our country?
No easy and painless way out of our mess. The Fed has been staling since 2001, staling and lying for 16 years, stealing our public money, taxpayer money and plundering our country leaving us with massive debts. How long are we going to live in denial??????????
A lot of pain may mean revolution and civil war in America. It does not just mean a high unemployment rate. We are going to pay a huge price, all of us will, for this debt orgy and insanity since 2001.
don't you just love how the soothsayers here already know the outcomes ... you gotta love these predictors .
It will be interesting to watch what will happen to you in the next three years. Please come back and post your update in 2019.
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