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Interest Rate Hike – Archaic Financial Thinking? (Part 2 of 2)

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Touch the Soil News #261

This is the second part of an opinion piece by Benjamin Gisin.

It is true a ¼% hike in interest rates is not going to topple the world. However, it is the mentality that money (capital) deserves a privileged advantage over humans and the environment that is becoming obsolete.

At the heart of the discussion is inflation – when the cost of things spiral up too rapidly. Rather than providing people more purchasing power to keep up, the Fed’s plan is to push people down so that they can’t spend and thus – through a collapse of purchasing power – prices come down. How do we even know if it is not a financial issue when prices go up, but an over-competition of people for limited resources? The question is never asked.

To help crush the spending that is the cause of inflation, the Fed raises interest rates. The raising of interest rates – in a world the runs on debt – is exponentially punishing. As the higher interest rate moves into the loans that individuals, businesses and governments have – the cost of living, the cost of goods and services and the cost of government goes up. Everyone who is in debt is obligated to pay the higher cost to banks, investors and other lenders.

Photo of the U.S. Treasury in Washington D.C. The national debt ($18.8 trillion) will be the first casualty of higher rates as its increased costs will further divide the nation.

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Most Americans do not have the purchasing power to cause the inflation that triggers the Fed to initiate a rate hike. As tens of millions of people struggle for an increase in the minimum wage, it will not only be the social injustice of unshared corporate wealth that is contested, but the Fed who adds burdens to the nation’s debtors.

 

Can you solve inflation by adding additional costs that contribute to more inflation? This then dominoes into financial insecurity which dominoes into food insecurity? By adding to the cost of the economy, all of the wrong things happen as people try to adjust for the increased cost: 1) People spend less so jobs are lost. 2) Big corporations take jobs overseas. 3) The nation’s debt burden is increased – causing more political discord. It is true not all of the economic ills America faces are the result of the Fed’s interest rate hike actions. However, they are a contributor.

At the onset of the 2008 financial crisis, the Fed lowered interest rates and essentially kept the nation intact by reducing the cost of enormous empires of debt. As of 9/30/2015, the total debt (individual, business and government was around $64 trillion. The dramatic lowering of rates by the Fed essentially kept the American nation afloat as costs on the national debt – and other debt – plummeted. The recent reversal of that trend will again push the American dream out of the reaches of many Americans.

The one size fits all approach to inflation – increase the debt burden for everyone by increasing rates – is archaic thinking in today’s world of so many “excluded” people. For starters, volatile speculation in commodities – that can drive prices up – could be regulated.

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