The governors of the Federal Reserve Bank voted to keep interest rates at historic lows in their September 17, 2015 meeting. The bank has not raised interest rates in nearly a decade. Lucky us, or maybe unlucky us.
Chairwoman Janet Yellen cited a number of reasons why the bank decided to keep rates low. She mentioned, for example, the weakness of manufacturing in China.
However, she didn’t mention that nearly 50 percent of US manufacturing is done in China, which, quite naturally, indicates a slowing down of US outsourced manufacturing, which certainly impacts the US. Like a good politician, she also did not mention that the evil US trade deficit is fueled by US manufacturers exporting jobs overseas, like Microsoft, Apple, Nike and Adidas. These and hundreds of other companies manufacture their products in China and elsewhere, and export their stuff to the US.
This is precisely and the only reason why the US has a trade deficit. The US trade deficit, in other words, is with US job exporters, not with China, Pakistan, Mexico or elsewhere.
Anyway, keeping interest rates low was a good thing for the US economy. Typically, the Fed waits to raise interest rates until just after the US economy begins to slide into recession.
That process begins when US corporations see a slowdown in their earnings growth, in the aggregate. These businesses begin to lay people off, which jacks up their profits. Perhaps the folks running the Fed take this as some sort of sacred signal that everything is all right. However, laying enough people off throughout the economy ignites recessions in the process of jacking up those profits, because the demand for goods and services slackens, jobs and profits decline, and a recession begins even while corporate earnings expand.
This is why I mentioned the slowdown of Chinese manufacturing, which in all likelihood, represents something of a slowdown of US manufacturing abroad. Profit growth has been shaky the last two years, though still growing in fits and spurts with sudden quarterly declines followed by rapid growth.
In other words, the US and world economies are still quite weak, especially since the rich have stolen 95 percent of all income growth in the US since 2009, an historic high by a wide margin. This has meant sluggish US and world economic growth since the more money the 1 percent steal in the US and elsewhere, the weaker the demand for goods and services by the 99 percent.
Yellen has the brains to understand all of this. This is likely why the Fed has kept interest rates at historic lows for years. To maintain their standards of living, the 99 percent had to keep borrowing because they haven’t gotten a raise in 35 years on average and in real terms. Raise interest rates and the demand for goods and services begins to die.
Raising interest rates will likely be the straw that sends the world economy into the monstrous fangs of the biggest economic crisis since the Great Depression. This crisis may already be in its early less visible stages.
Not a single world leader has learned the lesson from the last Recession. The current US economic expansion is fueled by the same artificially created housing and stock market bubbles as the last recession. Wall Street executives are calling the economic shots in the White House, on Capital Hill and the US Supreme Court. That’s why nobody who could do anything did squat about the corrupt forces that brought about last recession, and now the bill is coming due.
The last recession was the worst since the Great Depression. The next one, as I have pointed out in my book, The Rigged Game: Corporate America and a People Betrayed, will be far more hideous.
The Fed has literally no tools to fight off this coming Great Depression, but it will print trillions of dollars to save billionaires and others from their foolish investment decisions. See breakdown-of-the-26-trillion-the-federal-reserve-handed-out-to-save-rich-incompetent-investors-but-who-purchase-political-power–JohnHively.wordpress.com
The federal government will be forced to expand the deficit, and instead of having 48 million people permanently on food stamps, the US will have 60 to 100 million, unless the madness of redistributing income from the 99 to the 1 percent via job exporting trade treaties, unsustainable and illogical immigration policies (both legal and illegal, HB1 visas), and privatization scams.
Much of this can be reversed simply by amending income redistribution schemes known as international trade agreements, limiting immigration by restricting the flow of people moving into the USA at least until wages begin to rise, enforcing current immigration laws, and putting a halt and reversing many privatization follies.
All three of these policies have stolen jobs from American citizens, while enriching the politically and financially affluent in the process, all at the expense of people who produce goods and services.
Of course, that is precisely what the corrupt US government (all three branches), and both corrupt major political parties, have been driven to do by the money unleashed in the political markets since and because of the Reagan tax cuts for the rich.
The ultimate end game of Reaganomics is coming to its ugly conclusion.