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How can the interest rate still move up.......

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Lee Posted: Thu, Jul 16 2009 7:17 PM

I'm a little confused. If the Fed is keeping interest rates at zero or near zero then how they move up? In other words how can the rate of interest move up again when the Fed has artificially lowered it to zero.

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Esuric replied on Thu, Jul 16 2009 7:33 PM

Lee:
I'm a little confused. If the Fed is keeping interest rates at zero or near zero then how they move up? In other words how can the rate of interest move up again when the Fed has artificially lowered it to zero.

The interest rates must rise back to the natural rate. The interest rate is at 0 because the FED, through inflation, has arbitrarily made it 0. But the banks, which have become completely illiquid, and are all practically insolvent, must raise the interest rate in order to recapitalize. The FED can't lower the interest rates anymore.

"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."

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