“The gov’t doesn’t pay 10% interest, IOW, I’ll sleep just fine.”
The head in the sand approach will only work for a while!!!
Those of us who were in business in 1981 when Reagan got us out of Carter’s mess know what it is like to have the gov’t pay over 10%.... The only reason the gov’t is getting low interest rates is due to two things, both will burn them in the end:
1. They are manipulating the cost of living index computation by using substitutes for any high index items. Have since 1992.
2. The gov’t is printing so much money that they are creating hyper inflation, but hiding it. Anyone with any sense who reads the fed letter knows what they are doing.
The reason banks are going out of business is that they can’t loan 15 or 30 years at the artificial low rates now. Virtually all banks are agents for Fannie & Freddie loans right now. they are not lending their own money as they would be nuts to do so.
I was handling bankruptcy cases for car dealers and building contractors in the early 80’s when interest rate increases killed the economy almost overnight. Reagan inherited a mess from Carter.. High unemployment, high inflation, and high interest rates and he still turned the economy around. O’Bummer got it with low inflation, low interest, and low unemployment and still screwed up the economy and made it worse.
> The reason banks are going out of business is that they can’t loan 15 or 30 years at the artificial low rates now.
That’s correct. In addition, the historically low interest rates year after year, and now going on for about 20 years (i.e., the beginning of the Clinton administration, and corresponding to the last leg of the Reagan-Bush bull market in stocks) has greatly reduced capital formation, which means little new capacity getting built. Factories get abandoned in one place, and the capacity (which is not expanded, just moved geographically) goes either to other states with the best tax-break deal (those deals are finite in duration) or over the border / offshore. We probably all remember the S&L boom and the breathtaking cratering of it as interest rates came down after Carter; credit unions boomed thereafter, but their small size means they’re probably doomed. Banks are reduced to writing loans to build new homes, to buy cars (which are more often than not foreign-built), and shuttering branches.
The US federal budget deficit is financed by nations which export a lot to the US. Their economies wouldn’t exist at all without those exports. And there’s nowhere to invest that kind of money other than financing US debt. This has kept US interest rates low despite the record-high deficits year after year, because the deficit is indirectly financed by the trade deficit and the accompanying loss of domestic employment. Despite the increasing level of unemployment in the US, there’s also record numbers of illegal aliens working and living in the US, and prices of very low-end household items remain low (dollar store low), even while formerly premium items like giant TVs continue to fall (I saw a 60 inch 1080p plasma for $1100 tonight, and a 55 inch LCD for $900).
This has put China in an economically subservient position; China can’t stop buying US debt because it would crash its own economy, and its currency has to be devalued along with the US dollar. In order to supply its own markets, which are in constant growth due to the level of employment and unprecedented per capita income, China has to find even lower-wage countries, and as a consequence has been expanding throughout Africa. In a small way, this will result in a US deficit reduction because US aid to affected African countries will no longer be seen as necessary. Eventually the African manufacturing prowess and capacity will in its turn exceed that of the Chinese, and the Chinese investment in US debt will be fully paid off in US dollars worth less than the original value of the loan.
This is analogous to the borrow-gold-repay-in-silver contro that took place during Old Hickory’s administration.
This is also the same process by which Japan was reduced to an economic submissive. First the Japanese were building fuel-efficient autos, then were taking over other whole industries (cameras and their lenses, electronics, comic books). The Japanese manufacturers couldn’t supply the Japanese market profitably, and expanded operations in Korea, India, and various other places in the Far East to supply the Japanese market. The Japanese economy, banking sector, and stock market went into a spectacular bubble, and just before peaking (and subsequent pop) private Japanese investment in the US included Rockefeller Center, Hawaiian golf courses, department store chains, etc.
The phenomenon of huge deficit growth began during LBJ’s administration and continued nearly unabated (Nixon and Ford saw declines due to cuts in Vietnam expenditures and/or Nixon’s fund impounding; but the OPEC embargo kicked up inflation and undermined earnings, and ultimately helped put Israel-hater Carter in the White House, what a weird coincidence) right on into the Reagan administration. His midterm losses in 1982 led to 1983’s reductions by Congress of the Reagan tax cuts.
US industries have, since WWII, been developing expensive systems for the DoD and to a much lesser extent NASA. Miniaturized electronics would have emerged at some point, but the necessity for miniaturization came from the need for reliable ICBM guidance systems during that period when the US was lagging the USSR in its booster technology. The F-1 engines that powered the Saturn V were developed for the DoD, which needed a million-plus pound thrust engine to deliver the Teller H-bomb — then the F-1 was ditched when a smaller design was successful and the Teller line abandoned.
US industry has been vanishing for 30 years now, except for gov’t-financed infrastructure stuff (laying and repaving roads) and the DoD and its suppliers. Between those and the gov’t takeover of the few remaining heavy industries (auto manufacturing), lending (home loans and student loans), and the one bona fide growth industry — health care — even private employment will be more and more dependent on the US gov’t.