MONETARY ECONOMIC POLICY REALITIES

Raising Interest Rates Generates Inflation

Due to the 15 trillion dollars of debt service shared by our households, businesses, and governments, raising interest rates is a flawed monetary economic policy that automatically generates inflation in many of the major economic sector arenas. Consequently, production costs are increased which increases overhead costs and prices. Therefore, raising interest rates forces business and industry to raise prices to cover increased operating costs. Result the economy slows and most sectors lose. The Fed and most of the economic pendants and commentators conveniently overlook these and many realities that are more crucial.

In addition, this reduction in demand slows the rate of inventory turnover and volume of services, increasing the necessity to raise prices or suffer reduced profits. Of course, this also reduces overall competition because, lower turnover and service volume forces large numbers of competitors out of business. The Federal Reserve Board Chairman, Alan Greenspan, is talking about raising interest rates because according to him, the labor market is getting too tight and he thinks a slight increase in wages is terribly inflationary. The correct economic policy is the antithesis of these flawed monetary policy ideas that work against equity of economic opportunity for all economic classes.

Fed Chairman Greenspan Testifies before Congress (2-17-2000)

Let's examine the general claims he made:

Major questionable assumption number one. And this is a big one. Any increase in wages above productivity gains will reduce company profits or cause them to raise prices. When the real earnings of employees goes up there is an increased demand for goods and services. Profits are based as much on volume of sales as on the price for each unit sold. Therefore, the volume of sales will go up and the unit price could possibly even be lower.

Major questionable assumption number two: Greenspan is for unfair and extremely exploitive free trade, with no mention of fair trade. Greenspan is determined to continue monetary policies that are skewed against labor and that promote unfair exploitive trade and foreign investment.

Wild claim #3: Gains in productivity are threatening our economy.

Obviously according to Greenspan there is no way to have a win win economy. I want to hear an in-depth revelation as to how gains in productivity is a downer for our economy.

The Fed Lowered Interest Rates, (9-29-98)

Thank God, they didn't raise interest rates when they threatened to, or they could have generated some problems. The causes of our global economic problems are obvious. Wide open global economic policies leads to huge over investments in the cheapest production countries in the world by Transnational corporations. This leads to a huge over production on the Supply Side, while at the same time, reducing, or at least, not sufficiently broadening the real per capita earnings and purchasing power of the consumer Demand Side economic units.

This is a gigantic wrongful investment waste of capital while the demand side was being totally ignored -- lead to a vast failure of investments, this caused investors and lenders to pull out of those countries. The result has lead to increasing numbers of devastated economies. The correct global policy will monitor the balance between the breadth of per capita demand side earnings to the Supply Side's balance of production of goods and services. Yes, it is that simple. No, you can not throw away the tools that are needed to do this, such as: tariffs, quotas, antitrust, and global finance policies.

There Are Policy Remedies For Inflation That Will Work

Why are the antitrust laws not being used these days? Active enforcement would help reduce monopolization in all supply and corporate monopoly purchasing arenas. Additionally, prioritized lending to supply side competitors is a proper solution to monopoly price fixing, both in the buying and selling arenas. Lending policies and practices that facilitate genuine supply side competition is a win/win solution, whereas, tightening the money supply and raising interest rates greatly reduces the supply side competitive environment. This makes it much easier, in such a non-competitive environment, for large corporations to arbitrarily raise prices. It is obvious, with study and insight, too see that the real effects are the opposite of what the Federal Reserve Board claims they can, or are accomplishing, by raising interest rates.

One of the greatest Threats to World Peace

There is no ideological enemy in the world more threatening to world peace than the idea that tight money policy and high interest rates can control or regulate inflation -- this is a deadly idea that could bring on a worldwide economic depression of UNTHINKABLE CONSEQUENCES. It is critical that citizens understand these monetary economic policy realities before it is to late! We are on the brink of a global depression and the combination of REAL interest rates that are too high, and totally flawed global economic policies could bring a crash that few would escape.

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Initial Post: June 2, 1998; Update Revision: 07-11-04
Do You believe the Fed?