Dr. Paul Craig Roberts: Financial Collapse At Hand!

Ever since the beginning of the financial crisis and Quantitative Easing, the question has been before us: How can the Federal Reserve maintain zero interest rates for banks and negative real interest interest rates for savers and bond bond holders when the US government is adding $1.5 trillion to the national debt every year via its budget deficits? Not long ago, the Fed announced that it was going to continue this policy for another 2 or 3 years. Indeed, the Fed is locked into the policy for another 2or 3 years. Indeed, he Fed is locked into the policy. Without the artificially low interest rates, the debt service on the national debt would be so large that it would raise questions about the US Treasury's credit rating and the viability of the dollar, and the trillions of dollars in Interest Rate Swaps and other derivatives would come unglued. In other words, financial deregulation leading to Wall Street gambles, the US governments decision to bail out the banks and keep them afloat, and the Federal Reserves zero interest rate policy have put the economic future of the US and its currency in an untenable and dangerous position. It will not be possible to continue to flood the bond markets with $1.5 trillion in new issues each year, when the interest rate on the bonds is less than the rate of inflation. Everyone who purchases a Treasury bond is purchasing a depreciated asset. Moreover, the capital risk of investing in Treasuries is very high. A rise in interest rates, which must come sooner or later, will collapse the price of the bonds and inflict capital losses on bond holders, both domestic and foreign. The question is: When is sooner or later? The purpose of this article is to examine that question. Let us begin by answering the question: How has such an untenable policy managed to last this long?