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Interest Rates and Politics

Written by: Sean Hyman

Article Overview: The article discusses America’s national debt issues, policy makers and politicians, and why a higher interest rate is necessary for Dollar strength and a recovery.

Interest Rates and Politics

• Currency Investing

I had the pleasure of working from home yesterday and was able to pursue one of my favorite pastimes-laughing at the dog and pony show that is CNBC.From time to time they trot out some guest who invariably puts their foot in their mouth.Yesterday it was the unfortunate congresswoman from.... name will be withheld to remain neutral.

She came on and was complaining about the rising price of oil and how we needed more regulation to protect consumers from the "dark markets". Now we all know that oil has been on a wild ride recently, but this kind of thinking from an elected official is downright scary.In her mind, if we had more regulation, all things remaining equal, we'd have lower gasoline prices.Oh the naivete!

And this got me thinking:

How can we expect anyone in Washington to fix our economy when they don't even know what the root cause of the problems is!



Let's take a look at a few economic "challenges" that we are facing and what the misconception is:

As we mentioned earlier there is a huge misconception about why we have high oil prices.How can anyone here in the US believe that we should have the power to regulate the oil market when we don't even produce any of it!

That would be akin to me walking into Walmart (WMT) and telling them what the prices should be!If you'd like to know the REAL REASON oil prices are going up, read this.

The next challenge we are facing is falling housing prices.The folks in government will tell you that mortgage rate resets were the problem, but this couldn't be further from the truth.The bottom line is that home prices went too high, too fast.Someone would have to be operating on an extremely tight margin to have a 1-3% rate hike affect them so harshly.For the record, falling home prices is not much of a problem if you didn't buy too much home or are currently looking to buy a home.

I can't even begin to fathom the next problem.That it was prior budget deficits which have caused us to have 4x that amount as our current deficit!It's like trying to pay off your credit card balance with.... another credit card!If you want to cut your debt, stop spending!

More recently, bond yields have been rising and the Fed claims to have no idea why? Either this is a very shrewd and calculated statement or we are in some serious trouble!Bond yields appear to be rising as bond holders are dumping bonds as they are concerned about US deficits.

Lastly, the collapsing US dollar.If I hear one more politician say that we have a "strong dollar policy", I just might launch my TV. (unintended economic stimulus of buying a new one!)We don't. It's impossible to have a strong dollar with interest rates where they are unless the world is collapsing.

So here's what we do know, that the majority of elected officials haven't a clue as to what's going on in our global economy.To think that they (US government) can and should be able to control prices and what other countries and economies do is ridiculous.It goes against every principle ever written in an economics textbook.

Perhaps more of the decision-makers in our government should be REQUIRED to pass a basic economic skills test to see if they are proficient enough to hold office.Because now more than ever we need people who understand what's going on in the world, and not just what is happening in their own backyard.

Let me give them a clue: every decision they make about borrowing and spending affects what the Fed has to do to (put a band-aid on) in order to keep us from the brink of disaster.So we need to fix the problem before the rest of the world does it for us.I can assure you it will be painful, but not nearly as painful as if we don't take action.

And it starts with raising interest rates.

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Article Tags: bottom line, cnbc, congresswoman, economic challenges, favorite pastimes, gasoline prices, misconception, mortgage rate, naivete, oil market, oil prices, pony show, price of oil, real reason, root cause, ul type, walmart, walmart wmt, wild ride, working from home



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