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too close for comfort
Senior Contributor

Can you experts help me understand?

I really enjoy the banter between you guys. I am by no means an expert on anything, but I talk to myself a lot. I've been wondering, with the amount of debt the country is carrying they can't raise interest rates. (Yes?) They have to print more money to cover their expenses while hoping that our economy will grow fast enough to get us out of this. (Yes again?) But now one of the bright spots in the recovery (ag) is about to take a hit, (I'll be paying less taxes, and there has got to be a lot more lay offs coming) what happens to the recovery?

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9 Replies
kraft-t
Senior Advisor

Re: Can you experts help me understand?

The word experts disqualifies most of us to answer.  As a nonexpert i will tell you that the economy is slowly healing. Rising interest rates may actually help us as people may well advance purchases before rates get too high. those rates have been artificially low for too long. Perhaps people with savings will benefit from the rising rates.

 

I'm sorry to hear your income will be lower but they never promised to continue the ag prosperity indefinately. Hopefully you are financially able to function in a less properous environment. i think you will adapt and life will go on. 

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Flatland Hillbilly
Senior Contributor

Re: Can you experts help me understand?

No expert, just common sense.  There never has been a recovery, only decline.  Do you know when you pull the handle on the toilet and it kinda goes slow at first then it really gets wound up and sucks everything right down?......the toilet is about to get wound up.

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Palouser
Senior Advisor

Re: Can you experts help me understand?

To raise interest there needs to be consumption. Consumption fuels expansion and competition for $$$ to invest in production. We are mainly a consumer enconomy. Wages have stagnated. The middle class is shrinking. Consumers aren't willing to take on debt. The numbers are indicating that when a family replaces a car they are cutting back on other retail. There will be no consumer boom. There's unlikely to be any significant inflation in the near future.

 

Ag is a minor part of the economy. It has boomed via foreign demand and government policy. Ag has always gone through cycles and it will continue to. We will still get subsidies it appears.

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lsc76cat
Veteran Advisor

Re: Can you experts help me understand?

www.usfederalbudget.us/federal_budget_detail

Feds have a huge incentive to keep interest rates low.  FY2014 debt service is estimated at $222.9 billion so if interest rates rise too much that part of the budget will grow quickly.

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Palouser
Senior Advisor

Re: Can you experts help me understand?

I agree with you on the benefit and motivation for keeping interest rats low, all things considered equal. However, there is also the reality that a higher inflation rate than the current rate might result from more economic activity and that the revenue from that activity might completely cover the increase in government interest rate pay out on obligations. In that case the price of low economic improvement isn't an advantage.

 

 

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Wind
Advisor

Re: Can you experts help me understand?

I do agree with Kraft here.  Rising interest rates may wake up some folks to get that project or purchase going.  I like the idea of a little spike in CD rates too. 

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lsc76cat
Veteran Advisor

Re: Can you experts help me understand?

We have a "kumbaya moment".  I agree with both kraft-t and Palouser.  Accelerating purchases to avoid cost increases and taxes is something we Americans are great at doing.  Sustained economic growth is the answer.  If government growth is held in check to allow revenues to catch up that will be a big help too.

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too close for comfort
Senior Contributor

Re: Can you experts help me understand?

I'm at the point where a jump in CD rates would be appreciated. Low debt and investments that in a few years would benefit in less risky position. Wouldn't the jump in puchases ahead of a rate increase be temporary?

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sw363535
Honored Advisor

Re: Can you experts help me understand?

If cash were a little more expensive it might stop us from letting prices of real estate ramp up so much.  Larger purchases and land are getting a false value from cheap money------------- I almost want to say that low interest is blowing air into the real estate bubble.

 

None of that touchy feely stuff now --------- keep a safe distance  .  Smiley Happy

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