The monetary policy of zero percent interest rates that the world is following is the way to completely destroy the value of all paper money. Why isn’t anyone standing up to this pending disaster?
Why is it so easy to look back and say we should have stopped the housing bubble by not allowing the Fed to lower interest rates below market rates, yet so hard to see the pending doom that central banks around the world are engaged in?
Yesterday the Fed kept interest rates on near zero, continuing to flood the market with cheap money. Cheapening money is only increasing the problem by discouraging investing in production.
Therefore, production is at a standstill. Once product supplies run out and liquidation prices run their course, inflation is going to take a sharp turn up and it will be too little and too late to change direction.
Wealth is created with savings and production. The longer the government holds down the interest rates, the longer they will continue destroying wealth.
The US GDP shrank by 6.1 in the first quarter of 2009 and the economy is still slowing, yet the governments goals and entire budget is based on a small drop in GDP by the end of the year. For that to happen, the economy would need to immediately reverse course. It doesn’t look like the GDP will even be close to the governments’ worse case contraction of 3.3 for the year.
In other news today, Chrysler filed for bankruptcy with another $8 billion in government loans. The labor union and the government are now the primary shareholders. This just about guarantees they will never produce a profitable automobile and the government will have to continue to pump money into this organization forever.