Rates up

That rates would go up at the first opportunity after the election was as certain as anything in economic policy can ever be. It was just as certain as knowing that with a Democrat President, that they would not be raised until after the election was over. I thought it would be more, but the Fed has now stated that there will be three further increases in 2017 rather than two, so there must have been quite some debate. And there is no certainty they will each be a quarter of a percent either.

Not much more to say other than that this will work well for the United States, and given that rate reductions are now off the table, may work well for us, if we can follow along. Low rates will kill you. You are invited to read my article from the October Quadrant: That’s the Way the Money Goes. I will mention, however, that the title, the summary at the front and the lead-in para – the bits in black – were not written by me and do not quite say what I think. Here is how it should begin:

Low interest rates have been the mantra of economic policy for quite some time, even more so since the various public-sector stimulus packages that followed the GFC have been accompanied nowhere by anything like the kinds of recovery policy-makers had sought. . . .

There was a time, however, when it was universally recognised that monetary policies of this kind would only make matters worse, but that was a very long time ago. Perhaps we should go back and see what economists used to say about such things before we go even farther in this direction, whose continuation will make it ever more difficult to extract ourselves from the abyss of our own creation we now find ourselves in.

All part of economic resurrection. It may cost more to get your hands on money going forward, but it is also more likely that the higher cost of borrowing will help channel our savings into more productive projects.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s