In a free market, debtor nations with government debt almost two times the nation’s GDP don’t get to borrow at 5 percent. Thank the central bank, and Trump wants it to lower rates by 300 basis points. From Peter Schiff at SchiffGold.com via zerohedge.com:
Along with Trump, market watchers are salivating for rate cuts. But rates should be higher, not lower – and in a free market, they would be.
In a free market, interest rates are determined by the supply and demand for credit. Savers provide capital (supply) while borrowers like businesses, consumers, and governments create demand. Rates would reflect the real cost of capital. They would balance risk, inflation expectations, and real economic conditions.
Instead, we trust a small handful of individuals with full implied mastery of an infinitely complex system with endless interdependent factors that even they admit they don’t fully understand. It’s absolute madness when this same system, left to its own devices, would self-correct on its own if we allowed it to. In that self-correcting system, rates would be drastically higher than they are now.
All central planning does is distort markets by trying to override the natural order in favor of the preferred reality of bankers, bureaucrats, politicians, and academics. While you can achieve a brief illusion of success, you can’t do that forever. Meanwhile, most people have too little understanding of the dynamics, and too short an attention span to realize what’s actually happening. That includes politicians.
The prevailing popular sentiment always seems to be that we can just make the economy great by declaring lower interest rates and printing money, and that monetary easing is both necessary and inevitable. But while investors focus on short-term gains, the underlying conditions almost never support rate cuts in today’s economy.
