The gauntlet has been thrown down. Will the Fed meet the challenge and put its money where its mouth is? An astute ZeroHedge poster named Cowdiddly wants to know. Cowdiddly dares Federal Reserve members, who talk incessantly about raising interest rates, with the following comment:
Geeze again? They have been jawboning about raising rates since 2010. Go ahead Punks make my day.
Once again for the math challenged dreamers.
Interest payments on the national debt at Zero is running about 270 billion
at a mere 1 percent this becomes a 550 billion
at 2 percent 1.1 trillion a year with a tax base of about 3.1 trillion or 33% of Govt Income just to pay interest.
3% yea whatevea.
So quit yer yammerin and get after it you broke ass lying Sacks O S. I dare ya.
If Cowdiddly’s figures are correct, what do you think the odds are of the Fed raising rates? And, even if it did, how high can the Fed realistically increase rates without crowding out government spending on other things? Why would the Fed risk crashing the market by raising interest rates, if there is such little headroom to work with? Moreover, if the Fed decides to raise rates and, therefore, causes interest payments on the national debt to skyrocket, guess whose taxes are going up the most to pay the bill? And guess whose huge paper gains in the stock and bond markets are going to evaporate the most in dollar terms when the market collapses? That’s right—in both cases it would be the top one percentile of Americans, who own the most stocks and pay the most taxes.
But not to worry, the Fed works for the wealthiest Americans, first and foremost, and the Fed doesn’t want to be responsible for their future benefactors losing serious money in the market and paying higher taxes to boot. It would be out of character and poor form for them to do so. Therefore, the Fed is back to where it started—stuck at zero.
Why would the Fed risk losing what little credibility it has left by raising rates and potentially causing a market crash? To quell the ensuing outcry, the Fed would be under intense pressure to reverse course immediately and bring the federal funds rate back down to zero. In other words, any move the Fed makes to tighten monetary policy will be short lived in all likelihood. So why go there to begin with?
Like Cowdiddly says, members of the Fed would do themselves and everyone else a favor by just keeping their mouths shut. But keeping quiet is a daunting challenge for them because they believe they have to say something to remain relevant, even though they foolishly painted themselves in the corner years ago with their Zero Interest Rate Policy and repeated Quantitative Easing programs. At this point, they know and most observers know that the wires are cut in the wall behind the Fed’s control panel.
If interest rates rise, factors other than the Fed, such as the bond market or some other market force, will probably be the catalyst. Why should the Fed lead the way, when it’s so much safer to follow? To avoid doing any more harm than it already has, the Fed probably realizes that it is in its best interest to wait for cover, thereby making sure the blame lies elsewhere when the shit hits the fan.
In the interim, the Fed should heed Cowdiddly’s sage advice and put a lid on it.