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Fed Rate Hike Is the Wrong Move


#1

Fed Rate Hike Is the Wrong Move

Dean Baker

The Fed's decision to raise interest rates today is an unfortunate move in the wrong direction. In setting interest rate policy the Fed must decide whether the economy is at risk of having too few or too many jobs, with the latter being determined by the extent to which its current rate of job creation may lead to inflation. It is difficult to see how the evidence would lead the Fed to conclude that the greater risk at the moment is too many jobs.


#3

I just don't get it! Interest rates have not been market driven since early 90's, they've been artificially low since mid 90's and caused much of the real estate bubble, escalating values and the crash. Millions were not lost, those values were never real, they were like "really"? and here we go again with excalating values. They are tearing down first time homes (smaller houses in older neighborhoods) and building mcmansions for the newly minted 1/2 millionaire.

Manipulated interest rates are not market driven and over the last sever years only the billionaire monopolies have made money off of the low interest rates. Not to say that some people got low rates loans but come on it was a give away to corporations to buy back their stock.


#4

These are confusing times, to say the least. The "FED" - a hybrid public/private [cartel] 'corporation configuration' is facing unprecedented implosion from financial speculation in derivatives that are hanging like a sword of Damocles while continuing to fuel the same, over the western world - especially those of us who are small business entrepreneurs, students, primary home mortgage holders or retired having diligently set aside in retirement accounts (even social security matters and add other designations) - which were then allowed to be sucked into the speculative behemoth-of-minions model.
The FED's very own in-house bred minions that figured out how to generate triple digit debt-based trillions by ballooning the fractions of fractions from sales of those ever increasingly sliced and diced derivatives would ostensibly be impacted most heavily by even the slightest raising of the interest rate. Unfortunately, as a regulatory measure, in the absence of Glass Steagall, the reality of the pyramid scheme whereby taxpayers cover the malfeasance of banking practices virtually sanctioned by the cartel are held hostage to a long historical legacy of ever intensifying usury/fraudulent practices/austerity-as-control???.

Please add any corrections and additions.


#8

Economics as studied, described, and bemoaned is still too tied to the eternal expansion concept which relies on extraction from the earth. Guess what? The earth is exhausted. It's past time to put on our big people clothes and get to a new, fairer, and truly ECONOMIC (please look up the definition) system that values ALL LIFE ON EARTH. This rate hike ain't even a pimple on the boil of the butt of the beast; much ado about nothing.


#9

Bernie Sanders makes clear that the unemployment rate is 10% or higher. Why do people continue with this lie-so cutting back benefits can keep happening.--Economic indicators show that the world economy is in recession and the US is moving in that direction( I would argue the US has been in a continuing downturn since 2008)-So why is the Fed raising rates now? Its not a stronger economy- it is debt and how much has been created and the Fed is trying to slow down this creation of massive debt.-----The reason to lower interest rates is to drive real investment in the economy-but this has not been happening. Instead corporate america has been borrowing to do stock buy backs and mergers or buying up the competition. And even business people on CNBC talk about how these are the few remaining things failing companies do to stay afloat. The common people are never a consideration in these policy decisions. But the common people are the ones who will always pay the price.


#10

The fundamental problem is society is addicted to the growth of intangible financial wealth at the expense of the destruction of the limited tangible natural material wealth. This is an unsustainable process regardless of the games played by governments and the monetary rich. Unfortunately it is the masses who will have to pay the price of this malfeasance as the Apocalypse draws neigh in Western countries while Eastern countries strive hard to emulate what has gone wrong..


#11

Somehow I read your post to say 'momentary rich' which seems also to fit. LOL.
Intangible financial wealth it surely is or, as I prefer to call it, fictional. Either way, the real world, including us, gets trashed and the mirage that the 1% are chasing collapses into radioactive, GMO, PFOA, arsenic, lead-laced dust.
Belling the cat only gets us so far. How does the next step happen? I know I'm waiting for someone else to take it. Unfortunately, I seem to have a lot of company.


#12

If Corporate Democrats like Obama or Clinton really wanted to help ordinary working Americans with their debts they'd have passed limits to usurious credit card interest rates instead of crumbs like free pay by phone or paying off highest rate first with payments. Credit Union credit cards have an 18% limit which is still too high but certainly reasonable when banks are getting money printed by the Fed at %0.5 !!
the 18% interest rate cap is yet another advantage of doing all your banking via a Credit Union!
If you are not in a Credit Union you can find one with http://findacreditunion.com


#13

Dean Baker like Paul Krugman and other conventional Keynesian economists has fallen into the delusion that MONETARY Keynesianism can do anything to get us out of the banksters pit.
It is very difficult to push a string but that is all that low interest rates for BANKS (note not working Americans!) try to do - push demand via a low interest rate.
What we need is real Keynesianism - tax the rich and Corporations and use that money to fund the Green Transition supporting Green public transit, public libraries, public schools, parks, arts, music, the Post Office NOT more privatized everything vulturized by the plutocrats.
Green public transit could drastically reduce the huge amount required for transportation via privatized Auto Addiction which is an average $9300 per car per year! It also can reduce the huge land wasted by cars which is 10x that of trains, bikes or walking. It can cut the 70% of US oil usage for Auto Addiction and the 30% of US corn going to feed cars rather than people.
In the age of Limits to Growth and Climate Change we need to share things with public libraries, parks etc NOT privatized individual only consumption catering to the rich.


#14

Can't be said too often, thanks Owl. So many go on as if there were no conceivable reason for a fundamental re-set of "the economy" to harmonize with "the ecology."

As if this bizarre construct of school and work, debt and credit, interest and investment, colonization and extraction, derivatives and hedge funds, lawyers and lobbyists, is what is "truly important"... while people who focus on the health and integrity of the living Earth are oddballs with weird, personal agendas...

No matter how many mountains of useless crap are projected for next-period sales...
No matter how many hordes of "consumers" eagerly await the next-generation whatever...
No matter how much "employment" is hedged against by Fed interest rate moves...
No matter how much "demand" is demanded by Keynesian economists...

The fact remains: No Ecology? No Economy.


#15

One very simple action that anyone can do to stop the oppressive practices and exploitation of banks (a major enforcer of capitalism) is to close your bank account and open an account with a member-owned and democratically-controlled credit union.

Most larger credit unions offer services that meet (or exceed) those of banks. Credit unions offer lower fees and they usually pay higher interest rates on deposits. Additionally, most accountholder decisions are made locally by a person you can talk to directly.

Credit unions are member-owned cooperatives who are in business to serve and benefit their members ... not stockholders.


#16

Well, of course Baker is right that the hike is wrong. But it is important to acknowledge that that is why the Fed does this.

The funny thing about Baker's writing as though this were not the case is that he describes the motives so well:

  • 95% of the work force is working
  • Workers are afraid to quit
  • Wages are low
  • People work multiple part-time jobs for reduced benefits
  • The underemployed young are addled enough to imagine that elder benefits are a cost, not a benefit to them

A great myth of economics and economists is that most of the actions that they deal with are taken to create or amass wealth. Actually, most are taken to achieve or retain relative status, a zero-sum entity.

If we are to analyze institutions like the Fed, the World Bank, the IMF, the US Federal Government, or Goldman-Sachs, it may be helpful to know that they are neither neutral nor there to help us. That does not mean that we should decline to attempt their control or that business should be unregulated as in some Ayn Rand fairy tale. It also does not mean that some one of their actions might not be beneficial. One may argue that the chickens' coop is beneficial to chickens because it keeps out the fox, even while one recognizes that the farmer's intent includes having it hem in his Sunday dinner.

It should be stone obvious that the Fed has just moved to increase poverty, suffering, stress, and the like for the benefit of some class of rulers or some misbegotten notion of order, or probably both. Baker ought to say so and then move towards extending the discussion: What sort of personal psychopathies are involved? What sorts of broken gestalt have put such people in charge, and how can such things be altered or disassembled?

That might at least advance a discussion.


#17

I know little about China at this point but Japan and China seem to be going back and forth - which is probably a story in and of itself...