Where to start...................................
We, as a country, have screwed ourselves by using the very thing that used to keep interest rates high - leverage and credit. For the last 30 years, we have purchased, on credit, everything from vacations, big cars, overbloated college expenses and homes. This glut of credit helped create the transfer of wealth to China and the Middle East through shopping at WalMart and our oversized appetite for energy. We have mortgaged our future by buying on credit, way too much credit. This excess of credit kept interest rates high because interest rates rise when demand is high.
Beginning in 2000, we entered a secular period of lessening demand, demand for everything, including vacations, big cars and homes. When there is no demand, interest rates fall. Just look at Japan - a 25 year period of falling demand and a severe period of deflation. Deflation is what hurt during the Depression and Bernanke knows it. He must provide cover (read low interest rates) to give the eceonomy a chance to recover. By keeping rates low, Bernanke is sucking the life out of those already retired. Someone suggested buying a gold mining stock for its dividend. Retirees, as a group, would not be accustomed to the swings as big as precious metals. At its high, gold only represented a 20% value when it supposedly backed our currency. When the crap hits the fan, gold FALLS because banks must sell it to prop up its reserves. Gold is a fear investment which will fall like a rock when things get nasty.
China will not manipulate our interest rates because they need us as customers. China will try to leverage things from us - like Taiwan. China is a country of few rich and even less communists. The country is full of people who want something better. The government must keep them working to keep them busy and satisfied. They build cities with no with no one to live in them. They have no health care, no financial system and rule by fear. A Chinese citizen would rather live a winter in Montana than live in western China.
Rates will stay low for a long time unless demand returns which I do not expect anytime soon. The banks are greedy because they play on our own greed. Credit unions cannot serve this country's banking needs. They cannot make multi-million dollar loans to keep businesses going. Patronize them if you want a higher rate, I would. The big banks should have been allowed to fail. we might be through this already if they had - no one will ever know.
Debt is the killer of many things if used unwisely.
