|At Some Point Low Rates Lose Power To Stimulate|
The high interest rates of distant years also positioned those in power with an "ace up their sleeve" and a way to to boost or stimulate the economy at any time by loosening or lowering rates. The ace of lower interest rates has been played time and time again over the decades and it appears its power to bring consumption forward is about played out. To those of us who years ago never envisioned the super low artificial interest rates of today it is most ironic to see the concept of negative rates proposed in an effort to continue milking this effect. Sadly, when low rates are coupled with a massive expansion of new money creation, growing credit spawns debt that at some point overwhelms us and cannot be repaid. At that point this policy yields diminishing returns and has been compared to pushing on a string. This causes me to ask, has the power of low interest rates and all the benefits garnered from them been played out?
|Government Debt Has Soared As Rates Fell!|
|Predicting Inflation A Difficult Task!|
Today those who see inflation in our future are back on their heals and off balance as many people point to falling commodity prices as proof deflation is at our doorstep. To those in the deflation camp this removes the possibility that prices might soon soar as a result of the creation of massive amounts of newly printed money. A word of caution, in a complicated world future inflation is difficult to predict, we should not be deceived or led to believe that lower oil and commodity prides will in themselves bring about deflation. Often falling prices in both commodities and goods reflect a lack of demand or temporary supply imbalance that will correct itself. When that happens prices tend to rapidly adjust to what I will call the "new reality of the day".