Op-Ed: Interest rates and US politics – A terrible mix

Wall Street: — © Digital Journal

The expectation that the Fed will lower rates is just that – An expectation. Its connection with reality is debatable. That other well-known home of reality addicts, US politics, is the issue.

It’s also expected that Trump-side politicians will pressure the Fed. Regardless of why rates were raised in the first place, this is an election year. The theory is that rate cuts will be a plus for Biden. So rates stay high, and Biden can be blamed for high rates.

This has nothing to do with reality.

Reality wasn’t invited.

Higher rates were inevitable. Trump said in 2019 that he wanted rates at zero. These are charity rates for big borrowers who then give retail credit at credit card rates, which aren’t exactly zero.

Any moron could make big money on those terms, and a lot of morons have. They’ve also cranked up prices for food and rent for the last nearly two years.

What’s moronic is that these rises and tantrum-based economics effectively devalue money. Your money buys less. Bills increase. The entire economy is subject to these bizarre whims.

The Fed doesn’t and can’t work like that. Those rates bring in money to help with government debt and expenditures. The Trump side are the ones who think debt and expenditure are critical. The fact that their guy Trump caused the biggest increase in US debt ever isn’t a topic for discussion.

The demand for money to pay debt and not destroy the entire global credit system isn’t negotiable. The US needs the money. It’d need a lot less money if these idiot savants of fiscal restraint paid taxes, but that’s hardly news.

The hysteria is less excusable. Check out this link on the history of US interest rates. See the percentages. At the absolute top, now, we’re talking about 5%. Interest rates in the real economy, the one you eat and pay bills in, are a lot higher.

When interest rates were lower, many depositors didn’t get any interest. That drained a lot of income for some people who thought they could survive on those rates.

Mortgages on fixed rates are usually ballpark for something like the 5% figure. We’re talking about levels of personal financial commitment and obligations. That’s not a topic, either.

The USA recently lost its AAA credit rating thanks to endless government spending “debates”. Cut spending, they say. OK – How about no new defense contracts, etc.? That’d cut spending, a lot. They normally prefer to cut social security.

The US bond market is now looking very menacing. A lot of money, meaning a lot of billions, is piling into that market. It’s been a 100% predictor of recessions, and those patterns of bond behavior are forming again. Bonds are debt issued by governments and businesses. The rates they pay must be good to be competitive and receive money from investors. So, rates rise.

This is a political and business culture that is effectively illiterate. If you borrow, you have to pay. If you lend, you have to receive interest of more than zero. How does anyone not know that?

For more avoidable disasters, contact your smiling local political ignoramuses.

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Disclaimer
The opinions expressed in this Op-Ed are those of the author. They do not purport to reflect the opinions or views of the Digital Journal or its members.