Fed’s Low Interest Rate And High Inflation Design Might Stop Functioning In The Long Run In Generating Economic Growth And Government Agencies’ Revenues

Lately, I got a bit of a fever in wanting to know more about the United States’ economy, thus I’m still reading a very long book on economics of sort.  The book is “The Death of Money: The Coming Collapse of International Monetary System” by James Rickards.  This book got advance details on various economic assessments, and so it is a bit dull for me to finish it.  Nonetheless, I’m trying to anyway.  So far, it seems this book got my attention on couple things, but let me mention one in this blog post.

As reading this book, I noticed that James Rickards mentioned the Fed intended to keep the interest rate very low and print a lot dollars in the hope of creating higher inflation.  I think the Fed has had the idea of planting the fear — of seeing prices of products keep going up — into people’s mind.  Why?  If people are seeing prices are going up for everything, they fear the prices will continue to climb for some period to come.  These people’s solution might be all about spending the money they’ve earned now on the products they’re really needing now, because they fear the prices for the products they need will continue to climb to ever higher prices.  I surmise the Fed has thought this has been and continues to be a good option for the government to generate sale tax revenues.  After all, people will have to pay sale tax for the products that they will buy, right?

As the United States economy isn’t recovering fast enough to the level of high confidence in various industries, and so the United States government is in a very tight spot of wondering how to generate a strong recovery for the United States economy.  In this slow recovering period with low growth on job generation, the United States government is also in need of money to pay for the national projects.  With tighter budgets for everything, the United States government is supporting the Fed to generate high inflation and low interest rate.

In my opinion the Fed’s design of low interest rate and high inflation can work for a short period of time.  Right after the United States’ 2007-08 financial crisis, many people who were not directly hit by the financial crisis were having money still.  These people could spend their money in low interest rate and high inflation period to sustain their comfortable lifestyle.  Unfortunately, these people were the last supply for the Fed.  After seven years of low growth and slow recovery and low growth on job generation, the people who spent their money in low interest rate and high inflation period might just have ran out of money.  Going forward, it’s pretty hard to see how low interest rate and high inflation period can help the United States sustains the slow recovery.  As of now, we are still talking about an economy that is trying to recover in a slow recovery period!  And so the outlook for Fed’s design in hoping to generate growth for the economy and collecting some revenues might not look very bright!

Of course, I’m not expert on economics matters, thus I might be very wrong on what I had detailed.  Nonetheless, it’s my opinion that the Fed might have to do something else besides printing money and keep the interest rate low.  I guess we would have to wait and see how things will unfold for years to come.

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