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Interest Rate Increases – An Economic Tsunami? (part 2)

financialalert-2

Touch the Soil News #551

(Disclaimer – while the statistics are accurate, the perspectives of this news piece are not necessarily those of Kelp4Less, but of Touch the Soil editor Benjamin Gisin.)

 

A rise in interest rates not only increases the burdens of debtors, but has other far reaching economic impacts to include:

  1. A rise in interest rates increases the value of the American dollar relative to the currencies of other nations. American agriculture exports roughly 30 percent of its production. If the dollar gains on other currencies, foreign nations can less afford what America produces – ditto in all other industries.
  2. When it comes to food, which is perishable, any over-production that ensues from decreases in exports could backwash into a financial flogging for American farmers.
  3. Most major employers (large corporations) are heavy users of debt. An increase in the cost of debt historically is made up by cutting jobs, reducing pay, trimming benefits and exporting jobs overseas.
  4. A nation faced with higher financing costs simply means that in the global market it is less competitive.
  5. Higher interest rates, which make American goods less competitive than foreign goods, would be a dream come true for nations that export products to the USA – more jobs and more money in the bank.
  6. The reason for higher interest rates has historically been inflation. Yet, some of those voices today have no logical basis for their claims. In America inflation has been so low that Social Security has essentially given no cost of living increase for two years.
  7. The Federal Reserve recently reported that almost half of Americans could not afford a $400 emergency. If interest costs were raised an average of 2 percent on most of the $70 trillion in debt over the next four years that would translate into public, business and private penalty of $1.4 trillion a year – $8,750 per working person per year additional financing cost burden spread over government, industry and the consumer sectors.

A material increase in interest rates carries the risk of turning into a tsunami, drowning industry, people and the government with debt costs in excess of what they can hardly afford today.

2004-tsunami

With debt levels at 2.4 times greater today than in 1970, a 2 percent increase today could pose economic risks stemming from a 5 percent increase. Until the Federal Government and its $20 trillion in debt, and the private sector and its $50 trillion in debt get it whittled down, interest rate increases pose a disproportionate risk to the nation’s economy.

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