printThe lower-rung boobs informing the higher-ups—the economy’s monetary central planners—require empirical studies to confirm what the Austrian School of Economics, headed by Ludwig von Mises, had deduced through reason (i.e., via praxeology) almost a century ago.
“[L]ow interest rates spur banks to take on too much risk, according to a study by the Bank for International Settlements. …
The study showed several ways in which low borrowing costs over an extended period can cause banks to take on more risk. It found that if market interest rates are kept below the benchmark rate for 10 straight quarters, the probability of an average bank defaulting increased by 3.3 percent. …
Central banks may have previously ignored the effect that low interest rates have on risk-taking because of a lack of empirical evidence that such a link existed, Gambacorta said.
The risk of banks defaulting jumped by more in economies where interest rates remained low for an extended period before the recent financial crisis, the report by the Basel, Switzerland-based organization said.”
The bankrolling by Barack of bad loans, on our backs, continues Give bankruptcy judges more power. It is suggested that gov. purchase more of the bad loans at a discount from the banks.”
“Central banks may have previously ignored the effect that low interest rates have on risk-taking because of a lack of empirical evidence that such a link existed, Gambacorta said.”
It is much worse than that; artificial suppression of interest rates is guaranteed to produce malinvestments. The extent will depend on the degree and duration of the suppression. It is no “risk” at all; it is a guarantee that someone will suffer. Only occasionally do the banks themselves suffer; usually just a relentless transfer of wealth from the poor and middle class to the rich occurs.
Theft and oppression of the poor is condemned in the Torah. In exchange for being looted, the poor and middle class are given shoddy socialism to add insult and further injury.
“Respectable banker?” That is an impossibility under our current system. Ron Paul and others are hacking at the very roots of much of our problems including social degeneration.
An “interest rate” is a commodity, in essence, similiar to a lamp, a house or a piece of jewelry. But, it is a very sensitive and critical commodity. It should be the “freest” of all commodities and totally subject to the law of supply and demand. It acts as a “pivot” that responds to the supply and demand(leverage)of OTHER commodities. It’s the one commodity that must be allowed to seek its own level without government intervention. Each bank and/or lender must be free to determine at what rate it will lend money or pay money for deposits.
Artificially low interest rates induce the public to engage in risky behavior too. Risk averse people that would otherwise be quite satisfied putting their savings in a CD or passbook savings account, suddenly find that they cannot get adequate yield without dipping into their principal. They pull their money out of these safe investments and plow it into the far more volatile stock and bond markets.
Let’s face it. Most people do not have the knowledge or the inclination to be involved in equities. The Fed’s ridiculous monetary policies are forcing them into it. We already popped the NASDAQ bubble in 2000, only to have Greenspan force down rates to 1% for a year following 9/11, resulting in the far more destructive housing bubble. Now his successor has them at 0%!
These Fed bankers are completely insane. Unless a complete policy reversal takes place very soon, this country will be facing a currency crisis that will make the housing correction look like a small inconvenience.
Be prepared, because the consequences are going to be dire: hyperinflation, shortages, price and capital controls, possible gold confiscation, and possibly confiscation of 401(k) and mutual funds. If and when the latter happens, we will see widespread violence, looting, and martial law. It won’t be pretty.