Letter: Low interest rates are perpetual bailout

Let me state at the outset that I am a firm believer in capitalism and a fiscal conservative, who has a vested interest in the stock market doing well, as do many others.

The March 20 Economic Analysis column [Action by Fed can have unintended consequences], which states in part that “low rates (by the Federal Reserve) encourage banks to be generous in lending …” appears to extoll the virtues of low interest rates as imposed by the Federal Reserve for the better part of the last 12 years.

Do you really believe that more and more low-interest-rate loans are that good?

Low interest rates encourage more borrowing, which in case you forget, leads to more debt. More borrowing (to increase debt or refinance existing debt) increases reliance on more low interest rates. Business reliance on and planning based on such low rates effectively precludes the imposition of higher rates in the future. What business can go from 2% interest loans to let’s just say 4% interest loans? Very few. Can the federal government pay its debts at 4% after a decade of 1% interest? Of course not, and the Federal Reserve knows this. Hence, low rates as far as 10 pairs of eyes can see. Meanwhile, the people of this country who are savers or want to save are forced to accept .95% interest on a one-year CD.

This is effectively a perpetual bailout of Wall Street and Washington, D.C.

So sad.

__________

Richard C. Rody

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