The U.S. Federal Reserve’s efforts to boost the economy by holding down interest rates has saved corporate America $700 billion in interest payments over the past four years. Issuing debt at record-low yields allowed blue chips and shaky businesses alike to invest and expand
That’s great. My question is, at whose expense?
When the economic growth is steady everyone benefits over the long run, yet over the short run it’s a zero sum game. In order for businesses to benefit to the tune of $700 billion, many had to lose that money. So, who are these poor souls?
- Savers and older Americans who rely on fixed income for survival.
- Real economy. As most resources shift to the financial economy.
- You and I. Everyone will pay the price for artificially low interest rates.
But there is a bigger problem. Due to artificially low interest rates most of the capital above was misallocated to create financial bubbles and other mispriced assets. Instead of increasing salaries (which is understandable given the current economic backdrop) US Corporations have spent the majority of that money of various financial shell games such as stock buybacks, dividends, off shoring, etc…
Of course, that will come back to bite us in the ass…..big time. Thanks a lot President Obama, the Fed and the US Government.
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Alex, this is so very true and a travesty. Retirees and pensioners are being sacrificed like no time in history. So much deception by the government. This low interest rate policy has not provide access to loans ,thus the robust capital being poured into so-called P2P operations which are providing source of loans to individuals and businesses not being served by the banks. Great discussion!
Thank you very much Lovell. Yep, I couldn’t say it better myself. It’s a travesty. The whole thing is a giant ponzi scheme that must end sooner or later.