Remember back in December when the Federal Reserve raised interest rates? That day, 10-year Treasury bonds were yielding 2.3 percent. Those bonds had fallen to 1.74 percent by Thursday (the Fed controls short-term interest rates directly, but longer-term rates are set in the open market).
It's so rare for a business/economics reporter to tell that kernel of essential truth: the Fed doesn't set the market rate of interest, Mr. Market does. The Fed only, directly (well, sorta), controls the Fed Funds Rate:
But the Fed really doesn't have that kind of control over interest rates. It can't simply make interest rates whatever it wants them to be.
The Fed certainly has limited influence over short-term interest rates, but to say it has some kind of ironclad control over rates is surely incorrect.
There's a whole spectrum of interest rates, even in the short-term market, and the Fed has the most influence over the one that it targets: the federal funds rate.
[and this from the Heritage Foundation, would you believe?]
So, no, the Fed doesn't even get to set the Fed Funds rate by fiat. Don't you just love a central bank that can't act like a national bank? Here's a neat bit of history. The USofA (well, the Redneck parts of it) remains stuck in the 18th century. The punchline: the Rednecks killed it.
So, back to Irwin. What he, and he's hardly alone, fails to do is follow the money. Why is it that all that idle moolah is chasing Treasuries rather than making new plant and equipment? Why is a lot of that idle moolah being used to buy back corporate shares? And so on. The answer boils down to two:
1 - there just isn't much new under the Sun. case in point: AstraZeneca wants orphan drug status for Crestor.
2 - the CxO class can't find anything new under the Sun.
The result is simple: it's a zero-sum society. The financial sector runs interminable adverts on the TeeVee telling us that we have to save more. But without growth to drive interest return, all we get is deferred consumption. Which is to say, reduced consumption in the present. Which leads to recession and depression as demand flickers out like a dying candle in the wind.
The Right Wingnut cabal remains stuck in the agrarian mindset, that economic growth must be driven by population growth. Much of the rhetoric in support of mass migrations, mostly to developed capitalist countries seeking cheap (but local) labour, is that migrants have always been good for the economy. And, yes, through the end of the 19th century in the USofA, that was mostly true. But 19th century USofA was a vast land of untapped (by white folks, anyway) resources. It's not often mentioned in such propaganda that the USofA population has doubled since 1950. For those still wondering where the middle class went, it didn't go anywhere. What's happened is that the resources of the planet can sustain only so many middle class folks. Double the population, while keeping the number of middle class static, and you see a vanishing middle class. It's all about resources. We had two World Wars in the 20th century over who gets to control such vital resources. We're likely to have more as the per capita level of such resources drops. Have a nice day.
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