{"id":17468,"date":"2015-09-18T11:32:19","date_gmt":"2015-09-18T18:32:19","guid":{"rendered":"http:\/\/lifeboat.com\/blog\/?p=17468"},"modified":"2017-06-04T20:23:15","modified_gmt":"2017-06-05T03:23:15","slug":"what-if-u-s-had-raised-interest-rates","status":"publish","type":"post","link":"https:\/\/lifeboat.com\/blog\/2015\/09\/what-if-u-s-had-raised-interest-rates","title":{"rendered":"What if U.S. had raised interest rates?"},"content":{"rendered":"

At the end of 2015, the US national debt will be 18.6 trillion dollars<\/a>. With such a big number, it\u2019s tempting to put it in perspective by comparing it with things more easily envisioned. Alas, I can not think of anything that puts such an oppressive and unfair burden into perspective, except to this:<\/p>\n

US debt represents a personal obligation of $60,000 for each American citizen<\/span><\/em>. And it is rising quickly. Most of our GDP is used simply to pay down interest on that debt. Few pundits see a way out of this hole.<\/span><\/p>\n

\"bretton_woods-a\"<\/a>In my opinion, that hole was facilitated in August 1971, when the US modified the Bretton Woods Agreement<\/a> and unilaterally terminated convertibility of the US dollar to gold. By forcibly swapping every dollar in every pocket and bank account with the promise of transient legislators, individual wealth was suddenly based on fiat instead of something tangible or intrinsic.<\/p>\n

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Feds Meet: No interest rate hike<\/strong><\/p>\n

The benchmark interest rate set by the US Federal Reserve Board is currently between 0 and 0.25%. It has been at or near zero since 2006.<\/p>\n

By now, Lifeboat readers know that 20 hours ago, the US Federal Reserve board decided to not hike<\/em><\/span> the benchmark interest rate. The Fed did, however, signal that they still intend to raise interest rates at a future meeting\u2014perhaps in October or December.<\/p>\n

The announcement came just after US equity markets closed. But, in what has become a most odd news coverage of a non-event<\/em>, the immediate reaction was to lift the Asian stock markets, which were still open during the announcement.<\/p>\n

I am a frequent contributor to Quora<\/a>. I field many questions on economics, politics, law, and even physics. You might be inclined to check out my credentials as pundit of macro-economics. Don\u2019t bother\u2026There are none! I am an armchair economist (this is the same as saying: \u201cI am not an economist\u201d<\/i>). But I certainly follow these things closely, and have an informed opinion.<\/p>\n

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Today, I was asked this:
\nWhat would happen if the fed <\/strong>had raised interest rates?<\/strong><\/p>\n

The question asked specifically about the effect on other interest rates, but a more interesting exercise might be to speculate on the state of the economy. Here then, is a comon-sense response\u2026<\/p>\n

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If we could freeze all other conditions and avoid the effects of public confidence, likely change in debt, debt rating, etc\u2026 If we ignore these things, then the direct<\/u><\/i> result of raising the interest rate for a given national currency is to attract outside money. That is, we would see an increase in foreign conversion into dollars and a movement of US assets from stocks and bonds into currency or currency equivalents. This is a simple result of the higher payout that one would expect after a raise in interest rates.<\/p>\n

In theory, the sift of international assets and investment into dollars does four things:<\/p>\n