Tuesday, September 28, 2010
We should all pray for higher rates!
Frequent contributor to this blog, Matt Franko, posted a brilliant observation in the comment section of the prior post.
He points out that the public's holdings of Treasuries exceed $10 trillion, which is more than total loans and leases outstanding. If the Fed were to raise interest rates it would constitute a HUGE fiscal transfer via the interest/income channel. This means that, while most of the "know-nothings" (including many Fed board members) are talking about the need to raise rates now to stave off an incipient inflation, doing so would result in just the opposite. Higher rates would give a huge income boost to the public via higher interest payments, without a concomittant increase in production. That would absolutely drive inflation higher. The Fed is unwittingly keeping inflation down by keeping rates at or near zero, yet their own members and much of the financial community and the public don't even realize this.
Kudos to Matt for pointing this out. Trust me folks, you won't find this stuff anywhere else!!