Interest Rate Hikes: Gov Making Loans MUCH Harder to Get - Poorest Hardest Hit
The government and Fed are over a barrel. The federal debt is now over $30 trillion. But the Fed’s only way to address runaway inflation? Raising interest rates.
Everyone knew the government printing and spending trillions of extra dollars was an exceedingly terrible idea. With enormously bad inflation, interest rate and recession consequences to immediately follow.
Everyone, that is, except - seemingly - the federal government and the Federal Reserve. Because the government printed and spent the money. And as inflation began skyrocketing, the government and the Fed repeatedly issued ridiculous statements about it being “transitory” and “temporary.” And even worse - demanded even more printing and spending.
Now the government and Fed are over a barrel. The federal debt is now over $30 trillion. On which interest must be paid.
But the Fed’s only way to address runaway inflation? Raising interest rates.
Which poses the federal government a bit of a debt and interest problem.
All of which poses a bit of a problem for the private sector. Which needs to borrow money to continue to exist - let alone grow.
But the more money government borrows - to spend, and to service its massive and massively expanding debt? The less money there is for the private sector. Oh: Which also leads to even higher interest rates.
“(R)ising public sector spending drives down private sector spending.
“The government can boost spending by doing two things: raising taxes or borrowing.
“Higher taxes mean consumers and companies have less left over to spend. Most government borrowing involves selling bonds. If individuals and institutional investors buy those bonds, they may have less capital left to spend on private sector investment.
“The government might also raise interest rates to make bonds more attractive, leading to higher interest rates generally, which discourages private borrowing and spending….
“Let’s say a government wants to boost spending by borrowing. It increases interest rates on the bonds it sells to make them more attractive. Assume a consumer goods company had been planning to invest $5M in a new product line, expecting interest rates on loans to stay at 3 percent.
“If the government’s actions end up raising interest rates across the economy, the company now has to pay 4 percent interest on its loans, reducing its net return on the investment. In the end, the company may decide not to spend the money at all. Government borrowing has ‘crowded out’ borrowing and spending by the private sector.”
All of which will make the economy MUCH worse.
Speaking of the banks: They make much of their money - lending money to the private sector. Except the government is eviscerating that prospect for more and more people.
Of course, the richest of the rich will be able to borrow money.
But what of the Little Guy?
Speaking of the poor: As always, the poor are hardest hit when government screws things up for everyone.
So too will it be hardest for poor people to get bank loans. Which is a problem - because they need the money more than the billionaires to whom the banks will still be lending.
Into this government-created breach - have come payday lenders. Who do what no one else will - lend poor people money.
Poor people have low incomes - and often bad credit. The Big Banks won’t lend them a dime. Small banks did - but the Big Banks had DC murder them.
So payday lenders began lending to poor people. And now DC is - in bipartisan fashion - looking to murder payday lenders too:
“‘Congressmen Glenn Grothman (R-WI) and Jesus “Chuy” Garcia (D-IL) today introduced the bipartisan Veterans and Consumers Fair Credit Act (VCFCA).’
“What is the VCFCA? It’s a Socialist price cap bill. I.e. a rate cap on payday loans.”
But we know: If you cap something’s price - you murder that something. Because if someone can’t make money on that something - no one will offer that something. The most famous example being….
So government will be making it nigh impossible for poor people to get a loan.
While government simultaneously spikes inflation and interest rates - and borrows more and more and more money.
Making it much more difficult for everyone else - besides billionaires - to get a loan.
Because you can always count on DC for excellent policy.
Photo by 401(k)2012, Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0).