Fed finally raises interest rates, prepares to lower them when economic collapse accelerates

Thursday, January 07, 2016 by: J. D. Heyes
Tags: interest rate increase, Federal Reserve, market collapse

---

(NaturalNews) In recent days Federal Reserve chair Janet Yellen did something that was years in the making: She finally raised the Fed interest rate, though by only .25 percent, declaring the economy finally well enough to handle such a rate shocker.

"While things may be uneven across regions of the country and different industrial sectors, we see an economy that is on a path of sustainable improvement," Yellen said when she raised the rate Dec. 16.

But really, why now? Why did Yellen, after months of speculation, decide that now was finally the time to raise the federal lending rate?

Can you say desperation? Panic?

Just as many are predicting a second Great Recession or even a collapse of economies and currencies around the world, due in large part to the bottoming out of the commodities market, Yellen sounded a similar cautionary tone before making her announcement. At a press conference, she said this: "We've worried about the fact that with interest rates at zero, we have less scope to respond to negative shocks."

That's Fed bureaucratese for, "If we have another meltdown, we don't have any wiggle room left to bolster the economy."

Nowhere to go but down

But there's another problem with raising rates and all that goes with it, as noted by The Daily Sheeple:

"There has only been one thing keeping our economy afloat since the crash of 2008. That is, cheap money provided by the Federal Reserve. Everything from stocks to bonds and even real estate, have been pumped up by the Fed's limitless money supply."

Who can deny that is true?

The thing is, our Federal Reserve is not alone in this "quantitative easing" policy of making essentially free money available to banks and financial institutions, ostensibly for lending to the public. All over the world other central banks have followed the same strategy of inflating their supply of currency while keeping near-zero interest rates.

This has led to a monetary explosion – that is, a wide availability of cash that isn't premised on anything of real value. In fact, currencies are now – and have been since they were taken off the gold standard based on what central banks and governments say they are worth – based on a basket of economic indicators and realities. If those indicators go away and the realities vanish, so, too, does the value of the currency.

Another reason why the Fed and other central banks have followed the zero-interest policy is because it is a way for their country's exports to remain cheaper and, thus, easier to buy. "They've been racing to the bottom for years," The Sheeple noted, "but now it appears that the bottom has finally been reached."

And keep in mind that a .25 percentage point is nothing – a mere financial trial balloon to see how the country and the world react. Yellen is hoping that such a small increase – the first since June 2006 – won't frighten investors or bring back massive volatility into markets.

'Brace yourselves'

Yellen went on to note that increases would be incremental and spread over time, but also would remain low for the foreseeable future. The admission, though, that the Fed needed some wiggle room is troubling.

"[T]he Fed is shooting blanks. They can't inflate the currency any more without bursting our bubble economy," The Sheeple reported. "On the other hand, they know that raising rates will cause the bubble to deflate, since easy money is the only thing supporting it."

So, the U.S. central bank is stuck between competing policies and realities; this is new ground the Fed is breaking.

"Brace yourselves. The easy money train has made its last stop, and history's biggest credit expansion has reached its peak," The Sheeple observed. "There's only one direction this economy could go from here, and that's down."

Sources:

TheDailySheeple.com

LiveMint.com

Collapse.news