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As our world appears to be heading toward global economic doom, national banking systems are utilizing measures such as "quantitative easing," or the U.S. Fed's new "twist" in hopes of putting off the inevitable. I say inevitable because as long as central banks print more money and continue keeping interest rates low, global economies can not possibly pull themselves into any recovery.
As this article and many others are pointing out now, the world's markets are experiencing a major lack of confidence and certainty today. The world's investors follow these central banks closely. Hearing news of interest rates near zero does not in any way inspire confidence in their minds. If such news gives them any certainty, it is only to the extent that they can be certain times are not improving. Low interest rates mean only one thing in an investor's mind. Low return on investment can be expected.
Globally, we are afraid higher interest rates will bring inflation. They will. However, with that inflation growth will also appear. We need not fear runaway inflation. We already know how to put the brakes on it. We have been doing it for 10 years now. It is called interest rate zero. Interest rate zero not only saps investor confidence. It also drains confidence in the future, needed by employers when they consider hiring. Finally, it does not (contrary to popular belief) cause consumers to become more likely to spend.
A consumer considering a big-ticket purchase is just as likely to buy at zero interest, as they will at five percent, if five is the prevailing rate. If the five percent interest is unaffordable on the car or home loan, it is quite likely the zero percent loans are unaffordable as well. Additionally, telling the consumer that low interest rates are here to stay will never cause them to get off the couch and spend before rates go any higher.
We must learn our lesson before it is too late. Continued low interest rates will eventually bring spiraling deflation combined with the massive market plunges we see today. If you think, we have high unemployment rates today, just wait until employers begin shedding jobs en masse because they can no longer afford to continue lowering prices.
