We don’t know how to feel about it.
We guess it’s kind of nice… Although, that’s a weird way to think of it.
Regardless, it’s interesting to see a top Wall Street firm (the most influential firm, no less) agreeing with a view we’ve offered in these pages.
The firm in question is Goldman Sachs.
The view we’ve offered is that interest rates aren’t coming down anytime soon. More below…
It’s All Part of Their Plan
Bloomberg tells the story:
Goldman Sachs Group Inc. Chief Executive Officer David Solomon said he currently expects that the Federal Reserve won’t cut interest rates this year, amid an economy that’s proved more resilient thanks to government spending.
“I still don’t see the data that’s compelling to see we’re going to cut rates here,” he said from an event hosted by Boston College, adding that he’s currently predicting “zero” cuts.
Mr. Solomon goes on to explain that investments in artificial intelligence (AI) infrastructure will help the economy cope with these higher interest rates.
He doesn’t explain how… And to be honest, at least on the surface, we don’t understand that argument at all. But hey-ho.
Of course, as almost always happens when the big-wig folks on Wall Street catch on to our way of thinking, they don’t always have the same thing or idea in mind.
On the matter of interest rates not falling… we’re glad Mr. Solomon agrees with our view.
But on the point that it shows the economy is “more resilient thanks to government spending,” isn’t quite the same as our thought process.
Although, he’s on the right track in one way. But it’s not that government spending has made the economy more resilient. We’ll always argue that government spending makes an economy less resilient.
The truth is that government spending isn’t intended to provide resiliency. The intention is to force inflation to remain high to help the government cover its debt obligations.
Remember, government spending involves the government taking private wealth via taxation and spending the money now… possibly far in advance of when the private sector would have spent the money.
And if the government can take the money via taxes, it takes it via borrowing… which is really just bringing forward future tax revenues.
By spending the money now – mostly on pointless vanity projects that few want or need – the result is that the government creates an artificial demand for scarce resources.
That artificial demand will inevitably cause price increases, not just for the products or services demanded by the government, but for products and services demanded elsewhere by the private sector.
That’s because of the increased demand for those limited and scarce resources.
The higher prices devalue the value of cash held by the private sector, and equally as important, it devalues the value of fixed-interest investments, such as bonds.
This allows the government to repay older debt with newly created inflated dollars… money that is worth less today than it was when the government issued the debt.
Importantly, the higher inflation allows the government to keep on borrowing… and to keep on borrowing more and more. Because as the price of goods and services increases, the government will need to borrow more.
So it can borrow a trillion dollars today, to pay back the $900 billion it borrowed previously… but it does so with inflated dollars… and at the same time it has a ‘spare’ $100 billion it can use to cover its increased costs today.
And so it goes on. It will be the same next year, except it will be $1.1 trillion, rather than a plain old trillion.
The Goldman Sachs CEO is right about the direction of interest rates… but not for the right reasons. As we wrote yesterday, interest rates are staying up because the government is intentionally pushing inflation higher.
If it cuts rates, it would risk the whole thing getting completely out of control… rather than the gradual ‘managed’ inflationary increase they’re pushing ahead with right now.
Cheers,
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Kris Sayce
Editor, The Daily Cut