Tuesday, April 3, 2012

Real Reason Why Fed Keeps Low Rates...L&C

When Bernanke speaks of interest rates, he says the Fed keeps rates low to spur jobs and keep liquidity in our economy. This is only a half truth. Interest rates have very little to do with creating jobs. It does foster liquidity by making money cheap, but this really only helps the banking industry. They can buy even cheaper at the discount window, invest risk free in treasuries and beef up their ledgers. To be fair cheap money also helps near-term credit industries or cycle situations, such as the harvest season for farmers or spring fashion for the clothing industry, however those jobs are long gone to foreign ports. Cheap rates also cause the dollar to lose value, especially when the printing press works overtime. This will help with exports, but exports only account for 14% of our economy. Where is the help for the 86% or the rest of us?
By the way the original charter for the Fed only declared that they maintain coin in our economy and that this currency be strong. They added a vague line about related matters. Does related matters include buying Euro bonds to keep the ECM strong so that they can export to us, putting our companies out of business and costing us jobs? Well, that is exactly what the present day Fed does in its daily affairs.
But the Lies First!
The real reason the Fed keeps rates low is so the public and our foreign creditors won't begin to panic about the money that they have lent to our treasury and nation. Gotta give the Fed credit for the way that they have manipulated both our market and the international market to accept a bond that pays only 2% for ten years. C'mon! Ten years ago, gasoline was just approaching $2.00 per gallon. Today, it cost twice as much. What I can't believe is that during this span, the Fed says inflation is less than 2% and they get away with it.
The fed has managed to keep rates low so the federal government can pay their bills. This is the bottom line. At 2%, the interest expense for our national debt only grows at $454 billion a year. When you look at the historical interest rate averages, they range from five percent to six percent. Now, each one percent rise adds $88 billion to our debt. It would hit $930 billion a year if rates rose to six percent. When you compare rates today(2%), this is affordable at three percent of GDP, however at six percent, this debt margin jumps to 33% of GDP. Could you pay 33% interest on your wages and still make ends meet? This would be in addition to your living expenses, food, gas, etc. No, of course not! And yet, this is what our nation faces if we don't start to cut expenses, stop wasteful wars and redo our tax code that makes industry worthwhile to do here in the US and at the same time, close the loopholes and collect what corporations owe the government, which in reality is you and me. End the Fed!
Another black mark on President Obama's alternative energy record. Another solar company went bankrupt this week. Solar Trust, not only lost with that moniker, but it turns out is a subsidiary of a German company and get this. The company received a $1.5 billion dollar loan from our Department of Energy. So, the jobs act was a lie because this failure was not even an American company.