Posted by baseball55 on April 12, 2014, at 20:11:29
In reply to Re: taxes » Phillipa, posted by SLS on April 11, 2014, at 23:52:36
> Blame it on the Fed's forcing interest rates down artificially for the last 15 years. In an attempt to stimulate big business, the middle class has been sacrificed. This is especially true of the elderly, who rely on the interest generated by investment instruments.
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It's actually only been the last five and it's not just the Fed. Interest rates in Europe and Japan are also close to zero. Here's the issue.While it's nice to earn interest on wealth, high interest makes it costly to borrow. And people who borrow, spend. New factories, new office buildings, new homes, new cars, new shopping malls, new computer systems, etc, etc. Businesses, especially, spend more when they can borrow cheaply. They look at the cost of borrowing, compare it to the profit rate they can earn by expanding and, hopefully, decide to borrow and expand.
More borrowing means more spending. More spending means more jobs. More jobs means more people earning and spending and out of poverty and a more dynamic economy.
So yes, the small number of people who survive on returns to wealth (40% of all financial assets are owned by 1% wealthiest; 85% of American households have negative net worth - i.e, no financial wealth) lose out. But the economy as a whole, workers as a whole and, importantly, net debtors as a whole (85% of the population) can benefit greatly.
The only problem is that low interest rates don't always stimulate borrowing. In recent years, businesses have been skittish about
borrowing because they don't foresee profits at all. So even low borrowing costs don't induce them to borrow. Also, banks are reluctant to lend, even when people are trying to borrow, because they worry about another round of defaults.As for the Fed keeping interest rates "artificially low" - what is artificial about it? Is there some natural rate of interest? Central banks control interest rates. That's what they do. Why they exist. The Fed is required, by law, to try to pursue full employment.
poster:baseball55
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