Another Week of Fed Speak

 Almost without fail, every time the Federal Reserve Chairman speaks, the stock market declines. This week Chairman Powell reiterated that they will continue to raise rates for as long as necessary. I wonder why we need the Fed at all. A case in point. If a consumer has been putting items on their credit card at 10%, then their rate climbs to 15%, the odds are that they will limit their spending. Where does the Fed fit into this? They do not. That is the rub.

We do not need the Fed raising rates, because consumers will restrain their spending on their own when rates go up. Look at housing and mortgages. When rates go up, it does not affect cash buyers. It only affects people who need a mortgage to buy a house. At a 4% mortgage, they could perhaps have afforded a 2,500 square foot home. However, at an 8% mortgage, they may only qualify for a 1,800 square foot home. Unless they are in a forced move situation like a job transfer, then odds are they will wait until interest rates decline to buy more house for the money. Again, where is the Fed in this scenario? We do not need the Fed to tell us when to buy a mortgage. We can make that decision all on our own.

Therefore, the Fed raising rates only throws gasoline on the fire. The Fed's actions will do a few things, none of which are good for the average person. They will force people to pay higher interest rates. They will force large corporations to lay people off. They will force banks to quit loaning money or make it very restrictive to qualify for loans. The Fed does all this in order to get interest rates to decline. Yes, they raise rates for an extended period in order to get interest rates to decline. In other words, they inflict severe financial pain on most Americans. It is stupid. (My favorite word.)

Later this month, it is now expected that the Fed will raise interest rates another 0.50%. They do not need to do this. People will stop spending on their own. Rates are already high enough to curb credit card spending and mortgages. When the Fed raises rates, they put banks at financial risk, because people with 24.99% credit card rates are going to say, "To hell with it. I ain't paying this no more." The banks who issue credit cards will have to go after these people and their recovery prospects are diminished. There is only so much money banks will spend chasing down bad credit card debt. Most banks will write it off, then sell it to bill collectors who will hound the hell out of people trying to collect.

In my opinion, we do not need the Fed if this is their planned outcomes. Ron Paul was right.

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