Fed Raises Rates to Fix Inflation – It won’t and this is what it will cost you
The Fed just raised its rates, this time by 0.75%, a massive and historical figure by Fed standards, to 1.75%. They have signaled that it will increase to 3.5% by the end of the year, and 4% next year.
Traditionally this is what the Fed does to reel in inflation. The idea is to slow down consumption so that the cost of goods a cheaper. People cannot borrow as easily to build more business, buy a new house, or put so much on their credit cards if the rates are higher. In 1980, the rate reached a high near 21%. But in 1980, our national debt was only about $908 Billion, about 1/3 of our GDP.
This seems like a lot of money until you realize that our current national debt is over $28 Trillion on a GPD of $23 Trillion. That means that our debt service payments will go up proportionally.
So let’s get real for a second. With an 0.75% increase in debt service, that comes to about $200 Billion per year in extra payments that we get nothing for. That is an additional $600 in debt for every man, woman and child in the U.S. – every year it is maintained.
And you who are breadwinners know this falls disproportionately on you. Welfare recipients will get cost of living increases, retirees will get cost of living increases, all on the backs of the most productive people.
If it gets up to 4%, that means an additional $2500 per man, woman and child in debt. And that happens every year. And yes, it affects the breadwinners the most.
And what happens when the U.S. GDP growth is (for example) 3% while the debt service on a national debt that has exceeded our GPD is at 4%?
We get to the death spiral.
The Fed has to print more money to cover the debt. They have no choice, there is no other money to be had. Which means, you guessed it:
I would think the Fed would be aware of this. But we have already pointed out how stupid they have been in not realizing that inflation was going to be a problem.
But I will tell you now. The Fed’s actions will not solve inflation, it will make it worse.
Sorry for the bad news folks.