The real reason interest rates are at all time highs

A few years ago I made it my mission to better understand how the financial markets work and the economy as whole work. The reason I care about this and you should care about this, is because it impacts our everyday lives in the things we spend our money on. And more importantly are investing, which is the only way for you and I to get out of the rat race.

I am simple guy, so at times when I am studying and learning these things I am in well over my head and ability to understand. In an effort to keep it simple for me and for you, I thought I would try to explain the biggest thing that has impacted interest rates that are affecting purchases you may be making. Things such as cars, homes, and hopefully you aren’t having to use these to live off of, but even credit cards.

After the 2008 Global Financial crisis, our government went all in on something called Quantitative easing (QE).

(QE) is a monetary policy used by central banks to stimulate the economy by increasing the money supply. The Federal Reserve, the central bank of the United States, uses QE by buying government bonds and other securities from banks, which in turn increases the banks’ reserves and allows them to lend more money to businesses and consumers.

The impact of QE on the average person in America can vary, but it can lead to lower interest rates and increased borrowing and spending, which can help boost economic growth.

However, some economists and analysts argue that QE can also be harmful in the long-term. For example, it can lead to inflation and asset bubbles, and can benefit the wealthy more than the average American. Additionally, some people argue that QE can lead to moral hazard, as it can encourage risky behavior by financial institutions that are more confident that they will be bailed out if things go wrong.

The three main harmful effects to the average American because of (QE).

1. Inflation: Which erodes the purchasing power of your income.
2. Wealth Inequality: If you don’t own any assets such as stocks or real estate and rely on salaries and wages, you lose.
3. Higher Interest Rates: This is what we are seeing now.
   
   It’s also important to note that QE is not a panacea and that other policies such as fiscal stimulus, structural reforms, and good governance are also necessary to achieve sustainable long-term economic growth.

We all know that inflation is running at an all-time high. What the government says it is and what it actually is are definitely not the same. As of this writing, the current inflation rate is 6.45%. But if you go to the grocery you know that your bill is most likely on the low end up 20% but in some cases as high as 35%.

There are many projections on what will happen in 2023 as far as the economy goes, but we are currently seeing many large institutions freeze hiring and lay off percentages of their workforce.

My advice is to get your financial house in order by eliminating any unnecessary bills, but making it a point to invest your money into “real assets”.

To your success and your future.

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