Why Low Interest Rates Are Bad For You
Check out this excellent, excellent video where Ron Paul rips Bernanke a new one. He explains why lowering the interest rates is screwing the US citizens. Low rates leads to a weak dollar which causes inflation (since we import nearly everything from foreign countries).
By lowering the rates, the Feds are enabling inflation. Which they probably want because it makes it is much easier to pay back all the money the government has borrowed from foreigners. The government currently needs around $2 Billion per day to sustain itself. Paying back foreign countries with dollars that are worthless is quite an enticing option.However, it doesn’t come without any cost. Putting more dollars in circulation devalues the current value of each existing dollar. If the Fed increases the money supply by 10% per year, the value of each dollar of your savings is decreased by a corresponding 10% too. Since you’re not getting 10% interest in the bank, your savings are being eroded every year. This is what Ron Paul was concerned about. The savings of elderly people are being eroded while simultaneously, everything is getting more expensive.
As the cost of everything goes up, eventually the cost of real assets will catch up. Real assets include commodities like gold, wheat, corn, lumber, oil and especially investments like real estate. So the low interest rates has the effect of propping up real estate prices and engendering the so-called soft landing in the real estate market. However, since its mostly wealthy people who own multiple properties that are leveraged with mortgages, as the value of the dollar drops and the value of real estate increases, they get to pay down their mortgage with cheaper dollars while simultaneously enjoying the appreciation in their properties.
This is basically a redistribution of wealth from the poor and middle classes to the wealthy. So you should either vote for Ron Paul or invest in gold (pretty easy to do), foreign currencies (slightly more difficult) or cash-flowing properties (pretty difficult right now). The worst thing to do is nothing or whine about how unfair life is.
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November 11th, 2007 at 1:42 pm
Actually investing in currencies is a breeze. See ticker symbols FXE, FXC, FXB, MERKX
Bernanke … what a deceptive ass … “as long as a dollar investor only buys good produced in dollars…” What a jackass.
This is a clear signal to anyone with a brains to send 100% of your investments overseas or to companies with huge %’s of their business done overseas.
The chairman was another jackass … “Ugh, we have a lot of anxiety up here” .. to laughter … these a-holes think this is a joke.
November 11th, 2007 at 3:16 pm
Hi Thomas,
you’re quite right, investing in ETFs like FXA, FXC is easy.
the difficulty I was referring to was figuring out which currency to purchase that might be tricky. I guess I should’ve clarified that point.
mutual funds like MERKX maybe a good way to go too.
November 12th, 2007 at 6:19 am
“However, since its mostly wealthy people who own multiple properties that are leveraged with mortgages, as the value of the dollar drops and the value of real estate increases, they get to pay down their mortgage with cheaper dollars while simultaneously enjoying the appreciation in their properties.”
i am not good at economics. i didn’t watch the video (don’t know if this is relevant), but i did not understand the statement quoted. would you please explain?
here’s what i do understand…
- us interest rates lowered results in lower demand for the dollar in other countries
- because of supply and demand, the value of the dollar goes down
… but rich (or poor) folks living in the usa would still earn in us dollars, right? so how does it make it easier for the rich to use their cheaper dollars?
thank you.
- s.b.
November 12th, 2007 at 10:26 am
Great post. I might start tracking these ETF’s a bit more as well. So good looking in the comments as well.
November 12th, 2007 at 7:29 pm
as the dollar devalues, everything becomes more expensive.
including real estate. As ron paul explained, the devaluing dollar causes inflation. In order to curb inflation, interest rates will eventually have to be increased. This will cause mortgage rates to go up. Many people who have adjustable loans will not be able to keep their homes.
But wealthy people usually buy real estate with fixed-rate loans. They won’t have a problem keeping their real estate. Eventually, once the inflation has come under control and the rates drop back down to historical levels properties will have risen substantially. But only the wealthy will have been able to profit from them.
Read mortgagesecrets.com for a much better explanation. The exact link was in the first line of the last paragraph of the post.