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Raise Interest Rates?

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October 07, 2008 – Comments (7)

I know I'm going to get some negative comments or probably no recs for this post but...oh well. 

What if the fed raised interest rates?  I know its a strange idea.  Its definitely not a popular idea.  But if you look at the circumstances, the basic circumstances, it makes sense.  We have a downturn caused by too much easy credit.  A shift from a nation of savers to a nation of debters.  So wouldn't the logical answer be to get rid of the easy credit and return us to a nation of savers?

Corporate profits over the last 10 years have been based solely on the expansion of debt over the past 10 years. That debt is now flushing itself out of the system. What happens when that debt is all flushed out?

Currently alot of banks are facing a liquidity crisis.  They need cash.  So what is the logical answer to encourage the cash to come to your bank instead of gold and other assets?

Currently savers have no real incentive to save.  Banks are paying next to nothing in interest and the stock market is a joke.  Not the mention inflation is eating up the buying power of current savings. So what should banks do in order to encourage people to pay down their debts and save?

The free market has already started implementing this idea. Banks that are paying competitive rates on their savings accounts are seeing an uptick in new accounts.  So if the free market is having successful results, why not the federal reserve?

Now I know the immediate effect of raising interest rates would be quite dire. We would have a serious recession or maybe even a depression.  But honestly, aren't we already headed in that direction. But that recession and/or depression would also cause people to pay down debt and save. It would flush out the irresponsible companies and allow the responsible companies to take their place. It would create real wealth in this country instead of false wealth based on printing money. 

Once again, I know this is not a popular idea.  But considering the events over the past 8 years, I'm not so sure that the popular ideas are in the best interest of this country.  Currently everyone only cares about short term gratification instead of long term tangible benefits.  I believe that raising interest rates will be extremely painful in the short term, but will in the long term will return prosperity back to this country. 

7 Comments – Post Your Own

#1) On October 07, 2008 at 8:31 AM, dwot (67.31) wrote:

What would be better is affordable lending standards.  Affordable means that the lending term must decline as rates decline.  At about a 6% rate the maximum mortgage term never should have exceeded 20 years and 30% of income.

Instead they did two things opposite, they increased the percent of qualifying income and they made mortgage terms even longer then the already crazy 30 year terms.

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#2) On October 07, 2008 at 8:58 AM, outoffocus (22.85) wrote:

Wow. I got a comment from the top fool. Now I feel special. =)

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#3) On October 07, 2008 at 9:52 AM, Gemini846 (57.62) wrote:

They really do need to raise rates. 2% is some kind of inflationary joke. The fed is now talking about intervening in some kind of Comercial Paper. That will do a lot more to get big companies thru this crisis than making it cheep on banks which don't want to lend money now.

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#4) On October 07, 2008 at 9:59 AM, Randomeststock (46.95) wrote:

V121820: U.S. - Prime Rate Charged By Banks24/09/20085.00 V121821: Federal Funds Rate24/09/20081.54

What difference does changing the Fed rate make if the bank rate is 3 times higher.

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#5) On December 02, 2008 at 3:29 PM, SILUNG (< 20) wrote:

You make a good point about raising rates. I just feel it should be done gradually. Sometimes I feel the Fed plays too many political games. Since the rates have been kept so low for so long, you can't raise them too quickly. You would have pandomonium. They should let it be known when they will start raising to prepare the market for the changes.

Of course it has to be done to give more incentive to save. I don't care what anyone says, you can't have a debtor nation. Talk about bad for national security. 

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#6) On October 26, 2010 at 9:37 AM, oliverrandel (< 20) wrote:

○        The above thought is smart and doesn’t require any further addition. It’s perfect thought from my side.

 

Savings Calculator

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#7) On June 29, 2011 at 1:41 PM, kirkydu (93.58) wrote:

I think you are in focus.

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