LETTER TO THE EDITOR: Dangers of Fed’s low-interest-rate policy

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In addition to diluting the value of the dollar, the Federal Reserve’s policy of keeping interest rates at historic lows means capital that otherwise would generate a decent, safe return of around 5 percent from Treasuries or bank certificates of deposit is incentivized to flow to riskier investments, such as the stock market. Thus we are artificially increasing demand and driving equity prices up even further.

This irresponsible policy suppresses the wholesome discipline of the market, penalizes retirees who have historically relied on income from Treasuries to supplement their pension and Social Security income, drives them to seek riskier alternatives or to draw down their 401(k)s, gives private investors in the market a false sense of wealth, overstates the funded level of defined benefit pensions, and obscures the ultimate cost of servicing the $16.5 trillion national debt.

When this bubble created by Fed policy bursts, it could well result in our calling the great recession of 2008-09 “the good old days.” Alternatively, the air might slowly be let out of the balloon and we’ll experience 20 years of economic retreat, just like Japan. Either way, the U.S. economic future looks so bleak that the next president will have even more blame to heap on President Obama than Mr. Obama had to heap on his.

BOB FOYS

Chicago

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