It’s a strange world in which we’re living when the U.S. Federal Reserve raises interest rates for the first time in seven years and it’s already obvious that it might be a mistake.
Stock markets rejoiced this week after the Fed said it would end its long experiment with near-zero interest rates by raising its benchmark rate by 0.25 percent and emphasizing a plan to lift it gradually over the next three years.
The Fed finally undertook the action after several years of inaction because the U.S. economy was too weak to sustain an increase in interest rates that would handicap small businesses and consumers.
And weak or weakening economies abroad, from Europe to Brazil to China, mean that the U.S. central bank has had to be careful about doing anything that would disturb the fragile global economic ecosystem that persists a full five years after the supposed end of the Great Recession.
Yet Fed Chairwoman Janet Yellen tried to pull the wool over everyone’s eyes in announcing the increase by declaring that the small increase reflects growing confidence in the U.S. economy.
“We believe we have seen substantial improvements in labor market conditions and while things may be uneven across regions of the country, and different industrial sectors, we see an economy that is on a path of sustainable improvement,” she said.
Which is, of course, hogwash. Instead, the Fed’s action will only serve to nudge the U.S. economy and the tottering global financial system even closer to its ultimate demise: a collapse so cataclysmic that it will make the emergency of 2008 seem like child’s play.
There are at least a couple of big problems that Yellen was trying to obfuscate and about which the Fed is performing the equivalent of whistling through the graveyard.
The first big difficulty is that the Fed indeed is raising rates at a time when there is no clear evidence that the U.S. economy really is ready to stand strongly and sustain such an increase.
Yes, there has been progress in fits and starts since the official “end” of the Great Recession in 2010, but the truth is that – partly because of companies’ reticence to invest in factories and jobs with a socialist in the White House – America is still trying to put together a robust recovery from the worst economic period in our history since the Great Depression.
Meanwhile, the new flaccidness of the global economy, highlighted by big slowdowns in China and Brazil, and a very slow recovery in Europe, mean that the Fed’s rate rise seems to be a retardant in search of something vibrant to slow down.
Second, all of this is just a prelude to the climax of a coming economic calamity that is way bigger than some paltry quarter-point rise in the Fed’s benchmark interest rate.
Because of the accumulation of trillions of dollars of federal debt, and seven years of a spendthrift Obama administration and irresponsible Congress, America is shouldering an economic load that will bring us to our knees sooner rather than later. The entire flimsy, paper-based, debt-money system on which the global economy is based will be turned to powder as events unfold that the Fed and the Obama administration will be powerless to control.
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We’ve helped hundreds of clients do just that, moving decisively to protect their assets and their households, to the extent possible, in the face of the coming calamity.
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