Leaving aside the question of whether correlation
equals causation, there appears to be a strong link between the level of U.S.
interest rates and the overall health of the U.S. economy.
As the chart shows, the Federal Reserve-orchestrated slide in interest rates
over the past three decades has been accompanied by a falling savings rate, a
narrowing of the gap between personal income and expenditures, and a
substantial increase in total credit market debt.
While there may be more to it than that, including
government policies that favor debt over equity and a deregulation trend that
encouraged bad behavior by banks and other financial intermediaries, one
could readily conclude that the Fed’s current aggressive monetary
stance is doing little to return the economy to good health.
In fact, the central bank’s policies may well
be making things a lot worse than they already are.
This is a brief commentary from Panzner
my members-only website, which I posted yesterday: