Sunday, June 7, 2009

Creating More Government Has Opposite of Desired Affect

From AP;

"NEW YORK (AP) - The Federal Reserve announced a $1.2 trillion plan three months ago designed to push down mortgage rates and breathe life into the housing market.

But this and other big government spending programs are turning out to have the opposite effect. Rates for mortgages and U.S. Treasury debt are now marching higher as nervous bond investors fret about a resurgence of inflation."

Really? The government creates a false influx of cash equal to 15% of the United States total GDP and expects interest rates to go down?

Here's a question of Economics 101...If you have a sudden demand of loans without an increase in savings, what are the banks going to do? They are going to raise interest rates of both the loans and savings. They increase the loan rate to decrease the demand of lending, and then increase the savings interest rate to attract savers since most banks are required to have $1 in the vault for every $10 they loan out. The opposite occurs when people save more than they borrow, interest rates go down on both loans and savings accounts to attract loans and discourage saving.

So the government pumps in trillions of dollars that were intended to create more credit/borrowing, and they are surprised that the interest rates suddenly increase?

You know, something seems oddly familiar about this...Inflation is caused by "an increasing amount of money chasing a fixed amount of goods,”

*Begin slow clap...*

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