February 2016 business environment. Zero Interest?

Since Dodd/Frank regulations were enacted, real estate prices, borrowers, property  values, and home loans have all been regulated, appraised and qualified.  This is to make sure  nothing happens again like the Great Recession.  From 1990 to 2008 all you had to do was sign the purchase agreement and the loan was approved regardless of your income, credit worthiness or ability to repay the loan.  This time around everyone has qualified for their home loan and all the properties have been through grueling appraisal and underwriting criteria.  However; even with the current regulations, we have another unprecedented federal intervention that has affected real estate prices by holding down interest rates.  This has been brought on with the hope of creating demand for products so that families(the masses everywhere) will spend America out of the economic doldrums.    Our country and the world has been stuck in this low growth slowdown since the Great Recession.  This wishful overall market spending because of cheap money(QE) and zero interest rate event hasn’t happened.  While the low interest rates did drive up some assets(real estate, stock prices, car sales)  it did not convince everyone to go out and buy whatever they wanted like back in the early 2000’s.  Many people still have the memory of 2008 and are saving and paying down debt.  The government’s intention was for people to spend easy money so companies would create more products and hire thousands of people. The problem is that since people aren’t spending, companies are not growing and hiring employees.  Companies are buying back stock and cutting costs(layoffs) as a way to increase their bottom line, not creating, building or expanding.  This gives the stock market the ability to run up value and an overall sense of expansion and value within the economy while it is more a shrinking of the overall business cycle. Higher bottom lines have pumped up stock prices without growing the economy thus inhibiting and retarding expansion.  Without expansion and the creation of more  products(employment) the economy gets stuck in what we have these days, low growth-deflation with only basic needs spending.  WalMart is closing 275 stores!! and if that doesn’t raise a red flag what does? WalMart is the backbone of the working class family in America.  They stated last year that their core customer was having trouble with basic needs.

As you can see I am not a fan of Keynesian  economics and find it sort of insane for the Feds to meddle in the marketplace.  We end up with some outrageous asset prices that are mostly due to  artificial demand or interest rates  and then unmanageable federal debt. It is like a tiny band-aid on a huge wound, while appearing to stop the problem the unintended consequence  will be felt when it still has to be pulled off in the future and this band-aid could leave a huge wound.  Even after lowering interest rates to zero and still achieving minimal growth, world banks are willing to double down and push us into negative interest rates. Trust me, that is on the way.   Japan has been trying this same model for the last 15 years with no growth.  They just announced negative interest rates.  Once an economist is a fan of Keynesian Cool-aid they are always a fan.

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