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Interest Rates, Debt,
and Wage Disparity

September 28, 2015

A few weeks ago, the financial worlds literally stopped to watch what the Federal Reserve (FED) would do about raising interest rates from zero percent.  The markets were wondering if the FED would finally begin increasing rates.  For most of the current century, FED monetary policy has been to hold short-term interest rates at, or near, zero and often used a method referred to as quantitative easing (QE).  QE has been the FEDs primary tool since the 2008 economic crash.  In using QEs, the FED buys government or other market securities from banks without themselves possessing any real assets.  The effect is to significantly increase the amount of money in circulation while decreasing the value of the dollar.  From 2002 until the housing bust, banks had loaned huge amounts on inflated priced homes.   The FED, through several QE’s bailed banks out.  The ideas of responsibility and accountability were thrown out the window.  No longer were people being held responsible for poor decisions, and the rich became richer! 

If that isn’t enough, zero interest rate/QE practices effect American wealth distribution by discriminatory skewing financial markets.  In a recent interview Jim Rogers, a highly success US investor, commented, “Low interest rates are destroying the people that save and invest. Pension plans, trust companies, insurance companies — we’re destroying all the people that save their money for a rainy day and now they are being ruined… to bail out people who get it wrong — who ran up huge debts.”

Statistical data confirms the inflating effect of a zero rate upon asset markets such housing, stocks, and commodities.  Between 2008 and 2014, the FED announced and carried out three QEs. 
- With the first one, announced in mid-2008, a crashing stock market began to turn back up.  When QE1 ended, the market turned back down again. 
- In time, two more QE’s were announced; the markets followed the same pattern. 

Meanwhile, with the decreased real value of the dollar, people with savings accounts are seeing the value of their nest eggs dwindling away.  Those with large amounts of money to invest are turning to the commodities, stock, and housing markets which carry with them significantly higher short-term risks.  Those who are wealthy can wait out the storms and profit by them while those who are poorer are the ones who pay the price for the FED’s current policies. If you want to deal with “income disparity” consider focusing on the FED and its policies.  By the way, the FED isn’t a government entity, its private, and yet it has a major impact on our economy.

We find the understanding of how to deal with the current income disparately sorely lacking, especially among politicians at all levels.

This subject is more complex than there’s space to cover in 500 words but changing the interest rate policy must be solved before government can even began to think about solutions to income disparity. By the way, the FED held interest rates at zero on September, 17th.

Mark, Bill and John

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


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