caseyresearch.com / Justin Spittler / November 06, 2015
The Federal Reserve is considering its most reckless policy ever…
At a Congressional hearing earlier this week, Fed chair Janet Yellen said negative interest rates are “on the table…if the economic outlook were to deteriorate in a significant way.”
It would be the first time in history the Fed has used negative rates.
The idea of negative interest rates sounds bizarre to most people. And it should. The whole point of lending money is to earn interest…
With negative interest rates, the lender pays the borrower. If you lend $100,000 at negative 1%, you only get $99,000 back.
• Negative rates are a telltale sign of an unhealthy economy…
Interest rates are the price of borrowing money. The past seven years of near-zero interest rates have already made borrowing absurdly cheap. They’ve also made it painfully clear that people borrow a lot when borrowing costs next to nothing…
Over the last seven years, Americans have borrowed trillions of dollars to buy stocks, cars, houses, commercial property, and college degrees. When borrowing money is laughably cheap, no business idea is too dumb to fund…no $120,000 car goes unsold to someone who can’t afford it…and no overpriced house sits on the market for more than a month.
Few people ask, “Does it make sense to borrow this much money?”
Instead they think, “How much can I get?”
• Yet zero percent rates have done little for the U.S. economy…
The real median annual income in the United States has fallen from $57,795 in 2008 to $55,218 today. There are now twice as many Americans on food stamps than before the financial crisis.
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