Wednesday, July 18, 2012

QE3 vs. Raising Interest Rates: Which is the better option?

On one hand, Fed. Reserve Bernake clearly disappointed Wall St. yesterday in understanding QE3 will do very little to promote a sustainable economic recovery.  Merely see QE and QE2 did not accomplish a sustainable recovery.

Further, Bernake understands as the economy plods along and his warning about the fiscal cliff, at some point in 2013, there may be a point in time when there really is a need to give the economy a kick due to the expected return of the economy right back to a recession.

On the other hand, there is still no discussion on historic low interest rates might be the real problem.  With historically low rates, banks are not going to loan money to hardly anyone.  By raising interest rates, banks will start loaning money again.  With loans, come more jobs and increased consumption.  With more jobs, more tax revenue. 

So, consider the alternative-an increase in interest rates.  Clearly, artificially low interest rates are not working, unless one considers a stagnant economy a success.  So why not give raising interest rates as discussed on this blog for several years now as what needs to done a chance. Yahoos in favor of QE3 merely want to stall the economy in the short term.

With rising interest rates, those sitting on cash will rush in to by housing which should be favorable event to the economy.  Naturally, the problem with rising interest rates are those sitting on adjustable rate home mortgages will increase housing foreclosures again as the free market takes effect. 

I continue to suggest raising interest rates is a better idea than QE3, 4, 5 and 6.  Basically, increasing interest rates is the preferred long term solution for a sustainable economic recovery. 

In the short term, raising interest rates may be inflationary and cause another round of foreclosures.  Considering how artificially low interest rates really might be the cause of this rotten economic recovery that is not sustainable.  At least Bernake and I understand QE3 is short term and will only cause more delays preventing a sustainable recovery. 

In fairness, I guess there is might be some kind of zany idea related to why we are not raising interest rates by those in power for something these politicians, the Federal Reserve, the White House and others do not want to tell us the real story why we keep doing this artificial interest rate nonsense much longer.

Finally, who is really getting the most benefit from low interest rates?  Americans should consider and be asking why not raise interest rates. Whom will be the winners and losers out there when finally we do see rising interest rates?  If there is a good reason why raising interest rates is not a solution, where is the argument? 

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