New York Post: The Fed is Courting Disaster by Leaving Interest Rates Too Low

Article by Nicole Gelinas in New York Post

This week, the Federal Reserve likely will vote to cut interest rates — when it should be raising them. If the economy is so dependent on low interest rates that a near-record-low rate of 2.4 percent isn’t low enough, there is something wrong with the economy, and piling on more cheap debt will make the crash that much harder.

Since the financial crisis of more than a decade ago, America and the world have gotten dangerously addicted to debt.The Fed has fed the addiction.

The problem is that cheap debt got the economy into trouble in the first place. By 2008, after a decade during which interest rates were also low, people had already borrowed so much that they couldn’t borrow anymore. Household debt had nearly doubled between 2000 and 2007, to $14.2 trillion from $7.2 trillion. Choking on mortgage debt, in particular, Americans cut off their spending.

Americans were sending an important market signal; something was wrong. But the Fed wanted the economy to ignore this signal.

All of this has “worked.” Household debt is at another record high, at $15.7 trillion. Even entities that didn’t partake in the last boom jumped in. Corporations have ­increased borrowing, to close to $10 trillion, from $6.3 trillion on the eve of the financial crisis. The federal government has tripled its debt, to $18.2 trillion from $6.1 trillion.

Last week, one hedge-fund manager told The Financial Times that “every deal I’ve looked at in the past two weeks has been pure garbage” — indicating that much of this borrowing won’t be paid back.

To read this article in New York Post in full, click here.