The Fed, Interest Rates … and Free Money Trees

Money TreeThe Federal Reserve raised interest rates .25%. Imagine that a rabbit running from a coyote turned and bared its teeth. Momentary shock, a pause … and the coyote springs.

Wall Street funds politicians into office, the politicians do not forget when they pass laws. For example, when they superseded the Great Depression’s Glass – Steagle Act that prevented banks from serving both retail and investment banking. Having forgotten why that was done, we will shortly re-learn, courtesy of a Federal Treasury managed by Wall Street graduates.

A free market does not supply free money; if you want the use of another’s cash, you must compensate him for both the forgoing of his own usage and the risk of loss. Those set the rates at which you may rent the use of his cash; we call it “interest.”

When the government forces free money, ruling out interest as the Fed has done, the usages of that money become profligate. Why not; there is no cost of loss. The market has been precluded by government power.

The Fed uses government power to distort the normal market; it is a banking prostitute.Any financial game with the Fed involved, is fixed.

Handing out free money devalues it, ultimately, it will be destroyed when no one will trust its worth. The government knows that. It is why the Fed felt a need to return interest rates to normal, if slowly.

But returning the economy to normal costs of money will result in the destruction of those users of money who have no economic sense, but who exist for political reasons. A lot of environmentalist fancies, for example..

Those who lose money in the failures will complain to politicians, who will lean upon the Fed. It seems likely that, as with all the other central banks recently, it will back off from its attempt to restore normal  costs to the use of money. That will commit the ship of state to the ultimate destruction of the currency.

Instead of renting money, imagine that the Fed forced landlords to grant free use of their real estate. With no rental allowed, what would be the market value of rental real estate?

Our crystal ball is cloudy at best. But regardless, we suppose that the Fed, with its free money, is holding a tar baby that it will find that it cannot, for political reasons, put down. Feel free to disagree.

If so, we will shortly see a retreat toward free money … and the related destruction of the currency. During 2016, we guess.

 

 

 

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About Jack Curtis

Suspicious of government, doubtful of economics, fond of figure skating (but the off-ice part, not so much)
This entry was posted in Economics, Government, Politics, Uncategorized and tagged . Bookmark the permalink.

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