Forecast says double-dip recession is imminent

[Shamraz_Khan]

Re: Forecast says double-dip recession is imminent

@yazdi

^^^

The main problem was not addressed in 2008 in my opinion. So the economic problem US and some other western economies are facing will keep reoccurring. Let me give you my take on the issue.

The main problem is the lack of long term vision by the government which have to face the electorate after every four or five years. Interest rates are not left to the market forces and are manipulated by the governments through central bank interventions/fixation of rates/controlling the money supply.. these political governments prefer to keep the interest rates very low as it gives a short term stimulus to the economy.

What has actually happened in past two decades is that the individuals/governments have started to live beyond their means because of these manipulated low interest rates and cheap cost of money. Nobody weather it’s the government or individuals like to be told to actually pay for what they get. People like free goodies, and government likes to overspend and pay the nominal interest rates on these spent amounts.

Now these economies are caught in a vicious circle. Just imagine if interest rates are left today to the market forces they will probably reach somewhere in the vicinity of 10/15%.. The governments probably will not have even enough money to pay the salaries after they have paid interest on the debt they carry which is already spent.

I have read several articles which were written against the low interest rate regime which was introduced by Greenspan to stimulate the economy. Now these Greenspan policies had long term implication which we are seeing today.

In 2008 when the financial crises started it would have been beneficial for long term benefit that interest rates should have been raised step by step and over spending or living beyond means reduced step by step. The uS government did exactly opposite. They reduced the interest rates to practically nothing and increased the government spending to stimulate the economy plunging the economy in to more long term trouble.

Market forces are the best mechanism to introduce balance in any economy. The sooner interest rates are left to market forces, the better will be for the long term impact on the US economy. At present US has lost it’s manufacturing base.. the next step will be losing the innovation which comes only with manufacturing. people and government don’t want to hear that they must live within their means.. I see no short term/long term improvement for US economy.. unless they start addressing this core issue..!!!

The reason behind keeping low interest rate is to help housing market.