What? An interest rate of .02% on my savings account! Why that would mean if I deposited $1,000 for a year with my bank, I would earn just 25-cents! Or, if I had a lot of money and deposited $100,000 I would have an extra $25 (before taxes) at year’s end – surely that can’t be.
Historically speaking, you’re correct. Going back to 1880, the average, short-term, free-market interest rate averaged around 2%. That would mean you would have earned $20 for the year on your $1,000 savings account or $2,000 on your $100,000 savings account. That’s $20 vice 25-cents and $2,000 vice $25 – what gives?
Well it should be no surprise it’s going down the same Keynesian sink-hole that wealth has been disappearing down since the Great Depression. Following the failed theory that increased Government deficit spending and lower interest rates will rescue the economy. Then as now, and at every point in between, the theory has failed. Unemployment remains and stalled production continues; only deficits soar.
Today, unlike the 1930s when the nation was almost debt free, the United States is heavily indebted. In 1980 the debt of the United States crossed $1 trillion (T) for the first time. By 1990 the debt was at $3.2T, in 2000 it was $5.7T, in 2008 it grew to $10T, and today in December 2012 it stands at over $16T. To service this debt, the Government is paying $250 billion in interest (actually you’re paying it: $1,900/year per household OR $2,200/year per taxpayer). And remember that is 250 billion-dollars at today’s record low interest rates.
What happens if those Federal Reserve induced low-interest rates the Government is paying return to normal historical levels? What happens if the Government has to pay 800 billion-dollars or a trillion-dollars per year in interest? Picture Greece; picture rioting, picture 20% unemployment and the destruction of the wealth of a nation created through 300 years of hard work, free-markets, saving, and responsible Government spending.
This is a disaster none of us want to see or live through – such times often lead to total social upheaval and tyranny. It cannot be fixed without a plan, sacrifice, and a vision based upon the individual, free markets, sound money, and absolutely limited Government.
It’s time for the 2nd American Revolution.