Rising Interest Rates

00I was only about 11 years old when I first heard about the astronomical size of the national debt. That was in the early sixties. The word has always been that with debt, size doesn’t matter. It has always been explained that we owe the money to ourselves and as long as the economy continues to grow, the national debt is not an issue.

For most of United States history, the money supply was not changed suddenly and radically. Today the money supply is increased for the express purpose of transferring wealth from folks at the bottom to folks at the top. Low interest rates are far less than the natural market would ever justify.  The simplest way to get paid the most the fastest is to gain political power and then commission the Federal Reserve to elevate the level of the stock market and other assets. Corporations buy back their own stock with virtually interest free money and that allows corporate insiders to sell their own stock at astronomical prices.

All of this works for awhile,  but in a short time the economy starts to contract because the bottom half of consumers can no longer make enough money to be customers of the elitists in the top half.

For decades foreign central banks and investors in general have purchased U.S. securities with the profits made by selling goods and services to American consumers. Now they have stopped. This puts upward pressure on interest rates independent of efforts by the Federal Reserve to keep them low.

The chart above shows how rapidly foreign central banks and others are dumping U.S. Treasury securities. On paper, the chart is just a line pointing down after it has been rising for many years. As non-threatening as this looks, it is the beginning of a catastrophe. The United States national debt is so large the economy can generate enough profit to pay the interest on the debt only if rates stay far below what they would be in a free market.  If the world continues to sell off Treasury securities, the United States will not be able to pay its bills.

Sometimes a market can be distorted for many decades before market forces impose themselves on the economy. At this very moment, true market forces are starting to impose reality on our financial markets. As I often say, only Wall Street benefits on the way up. What is good for Wall Street doesn’t help main street in the slightest. On the way down, main street suffers severely.

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About Fantasy Free Economics

James Quillian independent scholar,free market economist,and teacher of natural law. Who is James Quillian? Certainly I am nobody special, Just a tireless academic and deep thinker. Besides that, I have broken the code with respect to economics and political science. Credentials? Nothing you would be impressed with. I am not a household name. It is hard to become famous writing that virtually no one in the country is genuinely not in touch with reality. But, if I did not do that, there would be no point in my broking the broken the code. If you read the blog, it is easy to see that there are just a few charts, no math and no quantitative analysis. That is not by accident. Given what I know, those items are completely useless. I do turn out to be highly adept at applying natural law. Natural law has predominance over any principles the social science comes up. By virtue of understanding natural law, I can debunk, in just a few sentences , any theory that calls for intervention by a government. My taking the time to understand the ins and outs of Keynes General Theory is about like expecting a chemistry student to completely grasp all that the alchemists of the middle ages thought they understood in efforts to turn base metals into goal. Keynesian theory clearly calls for complete objectivity. Government can only make political decisions. Keynesian techniques call for economic decisions. So, why go any further with that? Fantasy Free Economics is in a sense a lot like technical analysis. Technical analysis began with the premise that it was impossible to gain enough information studying fundamentals to gain a trading advantage. Study the behavior of investors instead. Unlike technical analysis, I don't use technical charts. What I understand are the incentives of different people and entities active in the economics arena. For example, there is no such thing as an incentive to serve with life in the aggregate. In the aggregate, only self interest applies. It is routinely assumed otherwise. That is highly unappealing. But, I am sorry. That is the way it is. I can accept that because I am genuinely in touch with reality. Step one in using Fantasy Free Economics is for me to understand just how little I really know. A highly credentialed economist may know 100 times what I do based on the standard dogma. Compare the knowledge each of us has compared to all there is to know and we both look like we know nothing at all. There is always more than we don't know than what we do know. I am humble enough to present myself on that basis. Why? That is the way it is. I am not bad at math. I have taught math. What I understand is when to use it and when to rely on something else. Math is useless in natural law so I don't use it. While others look at numbers, I am busy understanding the forces in nature that makes their numbers what they are. That gives me a clear advantage.
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