Yes, as The Fed raises Interest Rates to Curb Inflation designed to Decrease (“Destroy’) Demand, that is, to “bring down” Demand to be “more-in-line” with Worldwide Supply Chain Disruptions that were caused by Covid and, in part, by the ongoing Russian Invasion of Ukraine, Prices being further fueled by all the Extra Spendable Cash from the Stimulus Checks sent out to Individuals, Families and Businesses to “tide everyone over” due to the layoffs, shutdown of Businesses and, as a result, The Economy, itself, and with the Consequential Subsequent Compounded “Perfect Storm” Inflation created by the combination of all the above—The Raising of Interest Rates by The Fed to address this Resultant Compounded Inflation COULD ALSO, at the same time, help with Our Present Recurring Debt Ceiling Crisis!!
To back-up-a-bit and explain in more detail as to what caused The Complex Compounded Inflation Issues we are all now facing–Specifically due to the effects of The Pandemic and by the ongoing Russian Invasion of Ukraine—i.e., never-seen-before Global Supply Chain Shortages of many essential commodities (such as wheat), energy (oil, gas and LNG), various raw materials ranging from steel and aluminum to lumber and fertilizer (just to name a few), the manufacture and assembly of component parts including computer chips going into the final production of many consumer goods (such as cars and appliances) and into industrial machinery needed to produce a vast array of consumer goods and business-related items leading to increased costs from the subsequent bid-up in price costs caused by the scarcity of these needed items ALONG WITH other Increased Costs-of-Doing-Business such as Higher Labor Costs (to get people to come back to work and for Skilled Labor jobs in demand) and Higher Service-Related Costs (to both Businesses and Consumers for a wide variety of Installation, Repair and Service-related Upkeep tasks) COUPLED WITH AND IGNITED BY record amounts of Unspent Cash from all the Stimulus Checks sent out to Individuals and Businesses ALL BEING SPENT as we finally come out of The Pandemic—
That is, this “Perfect Storm” of Low Supply of Key Items–the raw materials and component parts that go into the manufacture and production of many things coupled with Excess Cash in the hands of both Business and Consumers leading to Price Increases for all these raw materials and component parts and ultimately for the finished goods and merchandise sold to The Consumer—This “Perfect Storm” of the “Worst of the Worst” of Coincidental Circumstances leading to the Resultant Subsequent Compounded Inflation that we’ve had and are STILL experiencing!
But Now, COINCIDENTALLY as well, the Raising of Interest Rates by The Fed to address this Compounded “Worst of All Worlds” Inflation and (hopefully limited to a) “Once-in-a-Lifetime”, “One-in-a-Million” Problem can ALSO, at the same time, help with Our Present Recurring Debt Ceiling Crisis!!
AND HERE’S HOW—First of all, The Raising of Interest Rates by The Fed to Fight Inflation Increases the Costs of Borrowing Money (through Higher Loan Rates) thereby Decreasing Demand and Purchases of various Consumer Items such as Homes and Cars and for Investors to borrow to purchase more Stock and for Businesses–Loans for Start-Ups, Venture Capital Loans, Business Expansion and Equipment-related Loans and also, at the same time, increases the attractiveness of investing in Fixed Income Assets such as Treasury Bonds (versus Stocks) which, in turn, also has the effect of Lessening The Total Amount of Money (Supply available) in The Private Business-Consumer Sector (in effect–A Quantitative Tightening Action-Strategy The Fed is already taking) where, as Economists Agree, we have “too many dollars chasing too few goods” from the record amounts of Unspent Cash being spent (saved up) from all the Stimulus Checks sent out during the heights of The Pandemic!
Second–And because Increasing Interest Rates increases the attractiveness of investing in Fixed Income Assets such as Treasury Bonds (versus Stock Purchases), this will replenish Our Ailing Bond Market we’ve had now for the past couple of years since The Onset of The Pandemic because of the historically low, low interest rates implemented by The Fed (and Other Central Banks Around The World) to improve the Cash Flow that was needed to help combat the negative downside effects of The Pandemic on The Economy and provide emergency relief, these historically low interest rates, unfortunately, at the same time, making Fixed Income Assets such as Treasury Bonds NOT profitable to purchase.
A prime example of this is the recent scandal with Silicon Valley Bank (SVB) which was shut down by authorities to prevent a “bank run” caused by the mismanagement of its deposits by over-investing in U.S. Treasury Bonds when Interest Yield Rates were extremely low and now with Interest Rates having risen to over 5% making any resale (and, hence, the current value of these Bank Assets) of such low Interest Yield Rate Treasury Bonds greatly diminished in value.
And Thirdly—But now, with Increasing Interest Rates, Treasury Bonds will become a more lucrative purchase and will also at the same time replenish the Bond Market, this preventing the recurring Debt Ceiling Congressional Crisis we’ve experienced more than once over the past couple of years due to the fact, we didn’t have enough incoming Treasury Funds (via Taxes and newly-issued Bonds because of these unusually low interest rates) to cover Governmental Expenses and Obligations becoming due and owing!
As it stands, Treasury Secretary Janet Yellen informs us, we don’t have enough money in The Treasury General Fund to cover Governmental Expenses and Obligations (becoming due and owing) and, as a result, we will have to borrow from Our Social Security and Medicare accounts, money that’s already been set aside and earmarked for recipients of these Funds and if nothing is done, as is currently the case, even these funds will run out this Summer!
But–If we had new fresh (Bond) money coming into The Treasury from Additional Bond Sales because of Higher Yields generated by The Higher Interest Rates being instituted by The Fed (to combat Inflation), we would then be able to pay Our Debts coming due, solve Our Recurring Debt Ceiling Crisis, remain Solvent and preserve Our National Credit Rating!!
Otherwise, if we defaulted on our Debts due and owing, this would send a shockwave around The World causing all Bond Purchasers both domestic and foreign such as China, Japan and European Countries that otherwise routinely purchase Trillions of Dollars in Bonds from us to now Demand a Higher Interest Yield Rate to make further Purchases. This would literally cost us Hundreds of Billions, even Trillions extra over the years to service the same debt level, that is, if we were lucky enough even with Higher Interest Rate Yields to still attract the same level of Bond Purchases!!
Also, another very important reason for The Fed to keep Interest Rate Levels at this increased level for a period of time as it finally gains control over Inflation, would be to help revive those Financial Institutions that have been “hit hard” which depend on higher rates of return on Fixed Income Assets just to function properly and cannot, as a general (fiduciary) rule, make more risky equity investments in the stock market as other Wall Street-type Commercial Investment Firms can. In addition to Banks to some extent that must have a set amount cash available at all times to their depositors, some of these Financial Institution Fixed Income Asset Dependent Entities, for instance, are Retirement–Pension Funds and General Annuity Funds which make monthly payouts to their Recipients and Insurance Companies (Auto Liability, Life, Medical, etc.) contractually required to deliver Guaranteed Claims Coverage to their Insured.
CONCLUSION AND PREDICTIONS—As The Fed makes its final basis point (interest rate) increases, U.S. Treasury Bond Sales are already starting to dramatically pick up! And The Fed in the next year or so, as it finally makes its last increase before beginning to decrease and bring down interest rates, there should be a massive surge of Long-Term Treasury Bond Purchases locking in these PEAK Rates!!
CONCLUSION AND ANALYSIS—This should solve any further Debt Ceiling Issues for the next few years as The Treasury again will have Funds Sufficient to cover its Expenses and Obligations BUT UNFORTUNATELY THE BASIC PROBLEM OF OUR $32 TRILLION IN NARTIONAL DEBT WILL STILL BE WITH US AND IT WILL BE CLIMBING! SOMEWHERE DOWN THE ROAD, WE’RE GONNA HAVE TO DO SOMETHING DIFFERENT!!
BUT WHAT?? Make Budget Cuts, but where? Remember as Society evolves and becomes more complex, it takes more per capita to provide what’s needed in the way of Safety, Service and Science to adequately protect and do what’s needed for Our Nation and Citizenry. And what about Biden’s $6.9 Trillion Dollar Budget Proposal?? Raising Taxes on High Income Earners and Corporations to help “foot the bill” but will it get through the Republican-controlled House of representatives? NOT!
The Republican counter-argument, btw, being—Raise Taxes BUT at what expense to Productivity, Investment and Economic Growth? A Corporate Minimum Tax? Raise the Corporate Tax Rate back up to 28%? But won’t that cause Businesses to relocate to other countries to cut costs? And Our Present National Debt? How will we pay and Service This $32 Trillion in Debt and now The Additional Debt from all these New Bond Sales with Higher Interest Yields to service and pay out every year and continue to Fund Social Security and Medicare?
One popular counter argument to all this is MMT (Modern Monetary Theory) which, in essence, says as Modern Responsibilities demand more and more of a percentage of a country’s GNP and for a country to continue to provide adequate Safety, Service and Science to its citizens, its National Debt will rise but (AND HERE’S THE CONTENTION) as long as there is an effort to contain costs of operation and to control the growth of this Deficit (especially) in relation to other Nations (and Their Economies and Debt Levels) such that the Value of The Dollar remains RELATIVELY preserved (in comparison to other currencies) and as long as this is the case, Our National Credit rating will remain (basically) intact AND THIS UNFORTUNATELY has become the new “just what it is and how it is”!!
And I say in response–GOD HELP US ALL!!!!!!!!!!!!!!!!!!!!!!
BUT ONE THING IS FOR CERTAIN–WE NEED TO APPLY AN IMMEDIATE TOURNIQUET TO OUR ECONOMY NOW AND RAISE THE DEBT CEILING AND FULLY REPLENISH OUR (LONG-TERM) TREASURY RESERVES AT THIS ONE OPPORTUNE TIME AS THE FED IS BATTLING INFLATION AND WILL RAISE INTEREST RATES TO ITS PEAK LEVEL RATE SOON (TO CURB THIS INFLATION)–THIS BEING THE TIME WHEN INSTITUTIONAL INVESTORS WILL (and SHOULD) JUMP IN AND MAXIMIZE THEIR PURCHASES OF LONG-TERM TREASURIES (TO SECURE PROFITS) AND AT THE SAME TIME THIS ACTION WILL HAVE THE VERY POSITIVE BENEFIT OF RE-FUNDING THE TREASURY TO BE ABLE TO HANDLE FUTURE EXPENSES AND OBLIGATIONS FOR THE TIME-BEING ANYWAY, LOL!!
UNFORTUNATELY, THOUGH, THIS IS THE ONLY PRESENT PRACTICAL OPTION REALISTICALLY AVAILABLE NOW!!!
SMELL THE ROSES–THIS, IN REALITY, IS OUR BEST, FOR RIGHT NOW, THE BEST POSSIBLE SOLUTION!!!
AND I SAY THIS TO ALL—TO THOSE WHO SAY, “WELL, CONGRESS JUST NEEDS TO BALANCE THE BUDGET.!!”
YEAH AND DHAT’S GONNA HAPPEN? LIKE WHEN??
[Ahhhhhhh, then Silence and then–I’m waiting . . . but alas No Answer]
YEAH, THAT’S WHAT IT THOUGHT!!!
As much as I hate that theory, MMT HERE WE COM
AND GOD, BE WITH US!!!!!!!!!!!!!!!
Pause, then it hits me
The Perfect Way Out . . .
At least for now, anyway
BARTENDER, GIVE ME A DOUBLE . . .