I agree mostly with your comments, but why do you think interest rates are at such a historic low? I think a lot of Americans believe that our leaders are doing great things and that is why it is so low.
Well, here's the reality. Interest rates in this country are not the result of a natural price discovery mechanism founded in supply and demand. If they were, then what we'd see is as follows:
* Congress would spend more money than they take in taxes - check
* Treasury Department would fund that deficit spending by selling Treasuries on the Open Market - check
* private parties would buy as much as they want at prices they believe compensate them for the risk - check
* if there wasn't enough demand from private parties, then there would be a failed Treasury auction, which would result in rise in interest rates - ooops! That's not happening. Why?
* The Fed is making sure no Treasury auction fails by buying up all excess supply. With QE1 & 2, they have expanded the balance sheet to $2.8T, which has very directly resulted in a suppression of interest rates on Treasury Bonds
* In addition, the Fed has continued to loan money to the TBTF Banks at zero percent interest
* They are able to do these things by creating money out of thin air. Literally, they credit the accounts of the Treasury and TBTF banks with newly created money.
* That newly created money has the direct result of decreasing the value of the money of the American people directly in proportion to the money supply.
* In addition, for the millions of retirees and savers in this country, their interest income is also reduced pro rata. They literally take home less money as a result, so that the Fed can fund Congress' profligacy and TBTF bankster bailouts.
So these low borrowing costs are not free. They have a very real cost. I am surprised you are extolling the benefits of low borrowing costs of the US gov't without talking about the equal and opposite costs extracted from the American people against their will. |
