Interest Rates and the Federal Government
In a previous post (Different Types of Loans and Interest Rates), I touched in the briefest manner on interest rates, why there are interest rates, and why there was variation in the amount of interest for different types of loans. Today, I would like to touch on a different aspect that is not often discussed; the civil government, and its interference in the banking system, and how that effects interest rates.
With the introduction of the Federal Deposit Insurance Corporation, a government “Corporation” that basically insures banks and their clients from loss. If the bank got robbed, the money would be returned by the FDIC. This and other intervention by the Federal Government has made it possible for banks, that, if they didn’t get a fair return on a loan, they would have this loss compensated by the state. This reduces the risk I mentioned of in that previous post. This, along with the Federal Reserve and it’s interventions, has caused interest rates to plummet significantly, which is good in the short term for borrowers, but strongly discourages saving.
What would happen if the FDIC and the Federal Reserve disappeared? What effect would this have on the market? First, we would go into a depression caused by the lack of stimulation, which has caused the market to make bad decisions that they otherwise would never of made. As part of this, interest rates would go up through the roof as the amount of money available to lend becomes nearly non-existent. Then, as the economy pulls itself out of the crash, the economy would grow, slowly at first, but in a few years would be growing fast and strong. So, in my opinion, even though it would hurt, pulling the intervention and aid from the economy would be of long term benefit. However, if we continue with it, the economy will eventually become too dependent on the state to get out of the crash, which is as of now, inevitable.
So, is the FDIC good? No. It may currently stimulate the economy, but in the long term, it will destroy the economy permanently. The same goes with the Federal Reserve. We need to allow the economy to grow and develop on its own. If this is allowed to happen, then we will be the beneficiaries of the richest economy on Earth, and bring the light of true, pure freedom, to the world.