Short-Sighted Economic Theory

This BLS Report may miss the boat. It bases its evaluation on past performance, not resorting to a study of economic trends. I will first say there is no obvious indication of a Recession anytime soon, but that a Recession will undoubtedly occur within the next 5 years, based solely on the extreme complexity of current economic integration. The next Recession, whenever it comes, will create a great Watershed; Government having already exploited almost every venue to expand the economy: the National Debt is huge, the Dollar is already declining, and the economy has already expanded into sectors capable of utilizing lowered Interest rates because of quick Profits turnover. The Government will itself be a major Debtor looking for subprime financing, which will not be found. It is my Thought that the only avenue out of a new Recession will consist of a reconstruction of American industry, there being no where else to regenerate positive growth. We are going to need those Blue-Collar Workers once more.

Gilles Saint-Paul presents an insightful Argument on the impact of interest rates as a price of a Product–financing. A Fed-dominated Interest rate constitutes artificial shelving of Product at non-Market pricing, remaining unconcerned about the quantity of the Product unless it raises the prices of other Products. Normal economic theory would suggest that the practice would bring constriction of Product provision–or finance. The trouble resides in there being a inversion of normal economic theory concerning the flow of Money resulting from the practice of Reserve banking. Extension of Loans become increases of Reserves, through the simple practice of the Debtor, or later Seller of other Product, redepositing the funds back into the banking system. Reserve banks obtain an almost limitless supply of Reserve funds to be lent out, all they need is the Debt purchasers. The Fed can set the interest rates, or Reserve rates, too low, and suddenly there are more Borrowers than is economically sound.

Gilles touches on how low Interest rates will affect Imports, which will increase in amount. Debtors and Product Sellers will wind up with a larger flow of Income because of low Interest rates, and will want to spend a greater share of that flow on themselves. Demand outstrips Supply of Consumer Goods, and foreign Imports quickly fill the Gap; a practice helped by Production Costs historically being cheaper Overseas. Those Products which must be filled by domestic production rapidly increase in Price, due to the increased Demand; Gilles’ increase is assets pricing. Saint-Paul says bubbles might be created, I will say that bubbles are automatic under such practice, it only being an equation of impactive Time and Pressure. lgl