Quantitative Easing and Low Interest Rates: Adding Fuel to Even Higher Debt Levels

Quantitative easing and low interest rates are two beasts that have been around too long in the U.S. economy—the after-effects of which will be felt by generations to come.

The U.S. national debt has risen to levels where it will take years and years to pay. Quantitative easing and low interest rates have only acted as a fuel to it.

When the credit crisis started, lower interest rates and quantitative easing seemed like a good plan by the Federal Reserve to light the torch of economic growth and bring the U.S. economy back to normal.

The Federal Reserve dumped trillions of dollars into the U.S. economy in hopes that it would generate growth.

Sadly, both of these measures of monetary policy (quantitative easing and artificially low interest rates) haven’t done much when it comes to the economic growth in the U.S. economy. But they certainly have done something to hurt Americans—low interest rates have hurt the millions of savers and retirees in the U.S. economy

Look at this story from The New York Times

Dorothy L. Brooks, who is 65 year old, had to go back to work as an assistant at a local school, because her investment were down due to stock market crash, and her entire savings were in bonds—paying almost nothing on the savings. ( Source: New York Times, September 10, 2012.)

Dorothy’s story is characteristic of so many retired Americans.

The Federal Reserve has said that it will keep the interest rates low as long as possible until it sees improvement in the U.S. economy. Quantitative easing—buying government bonds or other securities with newly printed money—could become the norm for the next couple of years.

Those who saved all their lives and are now planning to retire are getting hurt by the current U.S. monetary policy. Sure, low interest rates encourage people to borrow, but on the opposite side of the equation, low interest rates on money market securities, bonds, and saving accounts are forcing retirees to save more and a savers’ real return is negative due to inflation.

The government is a big benefactor of the current low interest rate environment. The government can borrow significant amounts of money at very low rate.

I am going to question all of this over and over again until I see real reason to believe there is growth in the U.S. economy. Current monetary policy—low interest rates and quantitative easing—haven’t done much to the U.S. economy other than hurt savers, hurt retirees, balloon government debt, and risk rapid inflation in the years ahead. (See: “No Escaping these Negative Money Printing After-effects.”)