Rebuilding The Economy, Why Interest Rates Are Too Low.

Yes, as of July 13, 2011, interest rates are two low to stimulate the economy.  And yes, Federal Reserve Chairman Ben Bernacke is wrong to keep them this low.  A simple lesson in supply and demand will demonstrate why.

1.  The price or cost of borrowing money is interest.
2.  The law of supply and demand reveals that is the price is too high you have a surplus and if the price is too low you a shortage.

In the late 1970s, the fed raised interest rates well into the double digit range to fight inflation.  As a result, the price to borrow money was too high and people would more reluctant to assume debt.  When the interest rate is 15% the payment on a 100,000 home is 1200--principle and interest.  The industry that was hurt more by these high interest rates was the US auto industry.  Americans began to avoid the purchase of expensive Chevy and Ford cars for cheaper models from Toyota and Honda.  We entered a period of stagflation...where both inflation and unemployment were high.  The economy was stagnant.  This led to the relaxing of lending rules, to get people to borrow, that remained in place until recently.  It led to the housing crisis and the economic situation we find our country in today.

To get people to borrow again, the Federal Reserve has kept interest rates as low a possible.  With interest rates being too low, banks have to tighten lending rules.  Mainly because banks can not make enough money on the mortgage alone, they change fees to make up for the lack of interest that they earn.  People are willing to borrow and companies are willing to borrow.  With interest rates being too low, lending rules have become at best more complicated, but it is tougher, at any rate to borrow more money today.  If the Fed allows interest rates to rise, then banks will be more willing to lend and loosen borrowing rules.  With more people being able to borrow, the economy will grow.

Karl Wimmer Declares...

Karl Wimmer has declared his candidacy for the US Congress in Utah even though the Congressional District boundaries have yet to be decided.  Most plans put the southwest portion of Salt Lake County into the 4th Congressional District.

For those of you unfamiliar with Wimmer, here is what I know about him.

-He is a member of the Patrick Henry Caucus.  This is not a Tea Party Group.  This group believes in a weaker federal government and stronger state governments.  Their belief is that the various states can run many things better than the Federal government can.  They are for the dismantling of the US Department of Education and various other Federal agencies.  This will allow for lower Federal taxes, but will obviously lead to higher state taxes.

-Wimmer has appeared on the Glen Beck show appealing for states rights.

-Otherwise, Wimmer totes the Tea Party line.

Oil Companies and Tax Breaks

It does not seem fair that we are paying through the nose for gasoline, yet oil companies are making a huge profit, does it now?  According to President Obama and Harry Reid, the oil companies deserve to help us close the gap on our budget deficit.  After all, it is only fair, correct?

The big flaw is this logic is the law of supply and demand.  When you have limited supplies and high demand the middle man is making a killing.  It is the nature of economics.  If prices are artificially low, no matter who is the reason for the low price, and the demand remains constant, then the result will be a shortage.  The rich will get even richer.  The consumers will get left with even less while paying more.  Forcing the oil companies to lower their prices, or to charge them more taxes will cause supplies to dwindle and prices will go even higher.  Supplies will become more limited.  This policy will only make environmentalists happy.

If Congress really wants to punish the oil companies, they should enact policies that will permanently increase supply.  This will cause the prices to drop.  It will then cut into the profits of the oil companies.  Then the only vehicles on the planet that will be parked more are the leer jets of oil executives.  What any company fears the most is more competition.

Name Change to Astroturf Republicans....

Since there is a pretty good chance that I will be moving out of the state of Utah for work, I have changed the name of this blog and will focus more on National issues.  I would like to thank Harry Reid for the name.