Thinkin' Outloud

Lowering interest rates to fend off this recession as the Fed says it is poised to do has more implications than what meets the eye I think.

Investors world wide seek one thing---return on their investment. By that, they mean a reasonable rate of earnings for the amount of money they invest considering the amount of risk they have by that investment. The United States has always enjoyed an excellent cost for the money that we borrowed because we have always been considered a safe haven from runaway inflation, political turmoil, corruption, and default. Investors world wide even came to accept our currency in their own economies, if not at their banks then in booming black market trade. We have enjoyed strength in our dollar as it was thought of as a hedge against uncertainty in other countries’ moneys due to its safety and upside potential.

Things have changed I think my friends. Our dollar has been plummeting against most other currency in the more developed nations. Investors have been trading our dollars for precious metals like gold and silver as they have some doubt in our future apparently. Part might be that some suspect that we may be increasing our money supply (printing money). Some investors are worried about repayment problems and one report that I heard mentioned that Standard and Poor’s (the premier bond rating firm) might consider moving us from an excellent rating to a “B” rating, which is pretty much like getting a D- in school, unless we move towards balancing our budget and trade deficit. The effect would be to drive away investors causing us to have to pay much more to get investors to finance our country’s activities. We are talking higher interest rates that they want.

Back to lowering our rates to spur our economy. Here is the problem---or part of it. If, because of our lackluster economic growth and sales of goods we truly need lower rates to kick start us back into action for the next few years but investors can earn more else-where in places with expanding economies and money from things like oil, why would they accept our next-to-nothing returns. With each lowering of interest rates in our country, your can be sure that heads are turning in the investment world looking for alternatives. After all, are investors willing to accept zero interest and just lend and invest for the fun of it?

With other economies like China, India, and the Petroleum rich nations building factories to supply the world with cheaply produced goods and services while demonstrating their ever-growing economic and political stability, and their strong demand for money and willingness to pay higher rates to get it, we could be finding ourselves in somewhat of a “pickle”. How can we pay higher rates when we can’t afford the ones we have now without risking a recession---or worse.

One could argue, I guess, that these nations would not want us to collapse into economic hard times as it would damage their own economies as we could not afford their products. But we are but just 300 million of the world’s 6+ billion folks and I kind of think that they might be able to get along fine without us. Of course, even we will be buying some of their cheap stuff in the worst of times---especially in the worst of times as our stuff that we produce costs too much which is evidenced by that little “Made in China” sticker inside everything we already use.

Part of me thinks that the answer is getting rid of our idiot politicians who spend like drunken sailors on those special interest groups that bribe them daily with campaign donations, perks, and put those in their place that truly understand the graveness of our situation and by electing a President who is man enough and has the leadership to guide us into forced hard-times to put our affairs in order to allow us to regain or economic respect and standing. I think the right leader and communicator could have the following of us Americans If he or she led by example and wasn’t hindered by a bunch of uninformed idiot senators and congressmen like we have now.

I kind of wonder if our enemies, like the many Muslim nations that hate us like Saudi Arabia, along with Russia and China, are just sitting back watching and laughing to themselves as the world is giving us just enough rope to hang ourselves.