...businesses don't use their saved cash to expand, hire new employees, or invest in physical plant or capital improvements. This is a lie they spread around so they can justify the tax cuts they want. They actually try to convince us the money they don't have to pay in taxes (or salaries) will immediately appear in your paycheck, or in new jobs and factories. Why? Because they LOVE you! (Look up "trickle down economics".)
If you cut their taxes, it will either all go to the stockholders or to executive bonuses, or to buy up their stock (which will temporarily soar in price due to the artificial demand). No business keeps large cash reserves around, they only keep just enough on hand to handle emergencies. If they need to expand, they borrow...if the interest rates are low.
So how do businesses "borrow"? They borrow from the banks, who borrow from the Fed. The banks make a middleman's profit, the businesses get super cheap loans, and the government pumps cash into the economy, creating new jobs. Its a way of printing money without actually doing so, so they can claim its all nicely "free enterprisey". Bullshit. Its inflationary, because what they really are printing is checks (or government bonds). And when it gets out of hand and causes inflation, they cut back on the money supply, which cools off the economy (and throws people out of work). The result of lowering the rate is like war (except nobody gets hurt), or welfare programs (except the poor don't benefit).
The Fed has an infinite supply of money, it just writes the banks more checks, and they write more checks as loans, and the corporations get checks.
It LOOKS like money, but there's no cash involved. Its all checks and computerized ledger entries. Did you really think the Federal Reserve loads greenbacks onto railroad cars and ships them all over the country? Its all vaporware. But occasionally, the system responds (with inflation) and they have to cut back the flow of phony money. Calling it "raising the prime rate" makes it sound legal and legit and very scientific and responsible, but it is just a way of slowing down the printing of money until the economy stabilizes again.
Lowering the Interest Rate accomplishes the same thing as Deficit Spending, except in the former, Capitalism takes the credit. in the latter, the government takes the blame. In either case, the rich get richer, the poor get poorer, and everyone in the shrinking middle gets the illusion of continuing prosperity.
Next thing you'll try to convince me is there is such a thing as the Law of Supply and Demand. Sheeeeiiitttt.
Off Topic » in reply to What's the big deal about rate hikes?
Contrary to popular belief...
The whole thread (75 posts)
- What's the big deal about rate hikes?
- Contrary to popular belief...
- Wow
- podinium
- podinium is basically worthless
- Economics is not physics
- In your defense
- We've covered this before, but you refused to accept it.
- As for ice cream...
- OMFG this is frustrating
- We've covered this before, but you refused to accept it.
- podinium
- Wow
- 1980
- Contrary to popular belief...