William Thien

Another Observation on The FED and Interest Rates

Posted on: June 4, 2016

Today the labor statistics report published by The Labor Department suggested that once again the economy is sluggish. The Federal Reserve Bank, or “The FED,” is poised to raise interest rates but the news from The Labor Department does not bode well for such an adjustment.

Let me approach the matter from another angle, one which is being overlooked in my opinion. When interest rates are kept low, as low as they have been, practically zero for the prime lending rate since 2009, inflation is stimulated dramatically, which drives prices up. What does not happen simultaneously and in fact just the opposite has been happening for quite some time is a corresponding increase in wages. Wages are going down. Prices are going up, but wages are going down.

As a result, people have less discretionary income. When in particular the middle classes have less discretionary income, they have to purchase necessities that are often manufactured overseas where governments use untoward methods to control their currencies, thereby making their products less expensive to the consumer. When the middle classes have to begin purchasing products en masse of a foreign origin due primarily to inflationary pressures brought on by The FED’s stimulation protocol, naturally that puts people here out of work and directly undermines our economy.

Many people believe The FED has stimulated the economy by keeping interest rates low way beyond necessary.

During the period of economic stimulation that began with the era of FED Chairman Alan Greenspan through today all manner of products and services have become dramatically more expensive. Cars and houses for example have seen price increases by factors of four and greater. Yet, wages have been stagnant or have seen a decline.

This of course raises a question. Could it be possible that The FED is not properly managing its responsibilities by keeping lending rates so low that it undermines our own economy?

Copyright © William Thien 2016

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