Wednesday, October 8, 2008

Pretty Soon The Fed Will Pay You To Borrow Money

They cut the interest rates again:
Ben Bernake and The Federal Reserve cut its key federal funds lending rate by half a percentage point to 1.5 per cent and lowered its discount rate by the same amount to 1.75 per cent.

The interest rate cuts by the fed are usually a short term solution and it doesn't do anything to really solve the economic problems. There is folly to this type of strategy. Ron Paul pointed this out in 2004:
In a truly free economy, interest rates are determined by market forces rather than central economic planners. The availability of investment capital, and the interest rate at which it is available, depends on savings, not fiat money and credit. The Fed's easy credit policies simply have made the cost of borrowing money artificially low. With lots of cheap money available, businesses and individuals spend with less discipline and incur more debt. Cheap credit created a wildly overvalued stock market, with many companies trading at outrageous prices. Eventually the bubble had to burst, resulting in record numbers of both personal and business bankruptcies.

The laws of supply and demand work better than any central bank bureaucrat in determining the correct cost of money, without the political favoritism and secrecy that characterize central banks. Americans should not tolerate the manipulation of our economy and the inflation of our currency by an unaccountable institution. The turbulent period we have entered may serve to remind Americans that the Fed cannot suspend the laws of economics. The key to lasting prosperity is a return to true private banking, where interest rates are set by the free market and dollars are backed by gold.
The monetary policies of the Federal Reserve have been a failure. Additionally, the money which should be restored to the financial systems should be the money that people like CEO Richard Fuld, of Lehman Brothers Holdings Inc., have pillaged from their respective companies.

I do find it laughable that Congressional members of these hearing committees have the audacity to scold and look down their noses at the CEO's who have trashed their companies, when these very same elected leaders have thrust upon the American people law and regulations and policies that have also contributed to putting this country on the path to destruction.

Monetizing large portions of debt is equivalent to printing more money.
In the 1920's German deficits had to be financed internally -- a difficulty which greatly accelerated the printing of fiat currency.
Looks like we are on the road to hyperinflation - anyone remember the lessons from 1920's Germany?