Uh oh - Recession here we come?

in #biden4 months ago



The correct way, the ONLY way, back to something like sanity -- after flooding markets with trillions in newly minted dollars -- is to raise the prime rate, so that interest payments to the fed will be larger, and more of that extra money will be returned to the treasury... that would be a move in the right direction to preserve the value of our currency above zero. Back in the seventies, the interest rate hikes you geezers remember were because there was too much new money in the market (right after Nixon got us off the gold standard, more money was the first thing they did), and the fed needed to reel it back in to preserve the value of the dollar.

You know how much new money there was? 13%. That much new money was added to the economy, and it did significant damage. The seventies were NOT a good economic time. Remember 12% mortgages, 21% credit cards? I do.

Now, of course, the new money is way more than 13%, perhaps closer to 100%. The money supply has been doubled, and maybe more. Reeling it back to the fed is impossible, because interest rates high enough to do it would simply STOP the economy and no payments would be made. So the damage to the value of the dollar is permanent. But they STILL don't want it to slide to zero. So interest rate hikes are coming. Which will do some serious harm to a weak economy.

Borrowing is essential to business, and business faced with higher borrowing rates and more expensive lines of credit will respond by REDUCING EXPENSES. Meaning reducing employees.

And when credit card rates bounce up because of this fed-caused increase in the cost of banking and borrowing, the cards will be used less.

And when entrepreneurial types, seeing the opportunity of their lifetimes, hesitate to pull the trigger due to their business loans costing 12% instead of 5% -- in addition to being much harder to GET -- then that's another part of the economy that gets hurt. Small businesses are a majority of the employers in this country, and the new higher rates will stifle and prevent the new businesses as well as making it harder for the existing ones.

The only time which is a GOOD time for higher prime lending rates is when the economy is roaring and can absorb that hit without flinching.

This is NOT THAT.

But if the fed does NOT raise rates, the dollar will continue to slide and inflation will rule the day for the foreseeable future.

Trump helped get us here. Biden wants to create even MORE trillions in new money. The fed has no good options.

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