RE: "a country has no choice but raise rates through the roof during economic depression to avoid hyperinflation"
That seems to be the theory, but it can't work on this round.
Virtually all bank card debt is based on a premium over prime. The monthly payments are based on a formula that covers interest and principal. An increase in prime, increases payments on cards consumers have already maxed out to make ends meet, and who are already hurting.
Worse yet, are the equity lines of credit of home owners. Those are also tied to prime and increases in prime increases payments. Right now those rates are quite low, but try imagining the devastation that would result from the kind of prime rate levels seen in the 80s. Payments on a $250,000 loan could easily hit $3,000 - $4,000 per month. That's more than a person making $22 an hour takes home after taxes. Of course, that's assuming they have no other bills and are willing to do without those little luxuries such as eating, transportation, and sleeping in a warm place.
A sharp increase in prime would trigger a massive wave of personal bankruptcies that would swamp what we've seen so far, and the impact would be nearly instantaneous.
I find it hard to imagine anything worse than picking one of the dinosaurs from 40 years of failed fiscal policy to head up the Treasury. To add injury to injury, there isn't a one of them that didn't learn everything they know from working at the institutions that drove our economy into the dirt in the first place. There isn't a name I've seen mentioned that doesn't make me shudder with dread. We're not talking about the stupid and incompetent. We're talking about hiring the criminally insane. |
