Interesting thought. I think that the Fed's QE is what has kept rates so low. They have been the biggest buyer of Treasuries, and many people don't realize that QE never really ended. They have been rolling over the proceeds (interest and maturing principal) into new Treasuries and MBS. That has put a permanent bid under the price of bonds, keeping yields low across the spectrum. When they finally do reverse course, that will push yields higher in short order.
As far as my own belief on where the market rate of interest is, I'd think it would be at least double or triple what it is now. We have $20 trillion in debt, maybe $14 trillion excluding intragov debt. We have the countries that are no longer accumulating US Treasuries at the rate they once did. Some are actively reducing their exposure. Absence the central bankers buying Treasuries, the free market would not have as much demand as the overwhelming supply of Treasuries, which means the Treasury would have to raise rates to generate interest. Price discovery based on supply and demand would push rates much higher. Without the Fed, our Congress may find that they can no longer afford the interest on this massive debt, which means they would be forced to balance the budget or run slight surpluses to pay it down. That financial discipline would be terrible for our economy in the short run, but would be excellent for our economy in the long run, because more money would be left in private enterprise's and consumer's hands to generate capital and growth, instead of the parasitic, inefficient and inept hands of government workers.
In addition, without the Fed covering the tracks for those criminal bankers, many of those banks would have already been insolvent and the parts sold off and the banksters would have been prosecuted and put in jail, just like what happened after the Savings & Loan crisis of the 80's. That outcome would also have been far healthier for our economy and our citizens rather than transferring the problem from the banks to the Fed and from there to the American people. This system is so corrupt it is breathtaking and the Fed is at the center of the cancerous wheel. |
