Pidgey
Well-Known Member
- Joined
- Jul 7, 2007
- Messages
- 1,125
It's not so much what was said, it's keeping the interest rate at virtually zip that's the indicator of a real problem. And, naturally, the implications of that are very complex. Try to think of the US as one big business that needs trade with the outside world to remain viable due to the requirement of both customers and materials. That is a simple fact that's easily taken for granted and not appreciated for all that it implies.
Trading partners don't like inequitable trade for obvious reasons. When it comes to dollars, treasuries and such things, NOBODY wants to retain a bad investment, especially if there's a high probability that its value will decrease in the future. If the value of the dollar drops and if the likelihood of default increases on treasuries and agency debt, why would America's trading partners want to keep the dollars and debt unless interest rates were increasing to help avert risk and retain value?
It's axiomatic that they (banks) charge higher interest on loans to customers with worse credit histories. On the surface, it's easy to say ask 'why charge people more money who have less of it to pay', but the banks have to cover themselves more on the loans that ARE statistically going to default more. The extra interest charged is like an insurance policy against the losses that WILL occur.
It's the same with sovereign debt but the terms and descriptions are a bit different. Investments in the sovereign debt of the US have become more risky for China, Japan, the UK, or whomever, but the interest rates haven't risen accordingly due to the pure fear of literally crashing the entire system. That speaks volumes but most people (by one helluva' long shot) do not have the education to understand it. For those of you who want to bristle at that comment... you shouldn't--you shouldn't because for most of us, life shouldn't have to require that we take that deep of a study into it.
In point of fact, the underlying structure of the US economy (and most other developed countries as well) is in dire straits and getting inexorably worse. Many of you think that some mix of consumer confidence, demand and "the party in control" are all it takes to keep an economy growing healthily. Nothing could be further from the truth, but I don't mean that in some kind of partisan way--it's all about energy production and utilization.
Trading partners don't like inequitable trade for obvious reasons. When it comes to dollars, treasuries and such things, NOBODY wants to retain a bad investment, especially if there's a high probability that its value will decrease in the future. If the value of the dollar drops and if the likelihood of default increases on treasuries and agency debt, why would America's trading partners want to keep the dollars and debt unless interest rates were increasing to help avert risk and retain value?
It's axiomatic that they (banks) charge higher interest on loans to customers with worse credit histories. On the surface, it's easy to say ask 'why charge people more money who have less of it to pay', but the banks have to cover themselves more on the loans that ARE statistically going to default more. The extra interest charged is like an insurance policy against the losses that WILL occur.
It's the same with sovereign debt but the terms and descriptions are a bit different. Investments in the sovereign debt of the US have become more risky for China, Japan, the UK, or whomever, but the interest rates haven't risen accordingly due to the pure fear of literally crashing the entire system. That speaks volumes but most people (by one helluva' long shot) do not have the education to understand it. For those of you who want to bristle at that comment... you shouldn't--you shouldn't because for most of us, life shouldn't have to require that we take that deep of a study into it.
In point of fact, the underlying structure of the US economy (and most other developed countries as well) is in dire straits and getting inexorably worse. Many of you think that some mix of consumer confidence, demand and "the party in control" are all it takes to keep an economy growing healthily. Nothing could be further from the truth, but I don't mean that in some kind of partisan way--it's all about energy production and utilization.
