Finance & Business | The Global Economy
The WTF Economy
Experts are raising rates on low expectations
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Everyone from the CFOs of major corporations managing balance sheets, to the working-class single parents filing an application for a new mortgage and recent graduates trying to purchase their first vehicle are struggling with the aggressive rises in the cost of financing. Fear of a major financial collapse is rising by the day, while the reality of recession becomes more imminent by the day.
In Washington, The Fed has been raising rates in an attempt to curb inflation, however, the effect has been to further push money into bonds and dollars since they are deemed safe by investors.
As a result, all indicators suggest that the target of 2% inflation that The Fed had previously set is now impossible.
Rather than reverse inflation, rising interest rates have instead driven down global stock markets by nearly 25% this year alone while global bond markets are down by 19% and look starved of liquidity.
It made sense that tightening money supply would make it more expensive to issue new loans and thus slow growth in wages and prices.
It made sense, but it hasn’t worked.
WTF USD
While the primary focus of The Fed has of course been the overheating American economy, the American Central Bank does consider global implications in making its decisions, and they are very aware of the global influence of the soaring USD.
The Dollar (USD) is the global go-to currency for exchange and borrowing, and that’s because it’s the most stable and reliable. Washington wants it to stay this way, for several reasons, the most pressing being global financial dominance.
When the USD rises quickly, the obvious effect is that it squeezes American exporters while making imports more attractive. What many people ignore however is that the increasing USD also makes debts borrowed in USD much more expensive for those firms and nations operating in another currency. The result is that the overall cost of debt for the global community increases so much that new projects become impossible.
