Hiking interest rate has its own risks, but even if Fed does not raises rates, it faces a number of risks. A brief study is given below –
Where the money went –
Where the money didn’t go –
Problem with central banks is that they can provide easy money but are not able to control its allocation. Even IMF has now recommended that there should be more control over where banks can and cannot lend. It has taken very long for the IMF to find that it cannot control allocation of resources. Instead of imposing more controls by central banks, it should think about free market interest rates.
ZIRP failed totally in achieving its aims, fuelled speculation and asset bubbles, created imbalances in economy, and if it is allowed to continue, the risks from asset bubbles will become unmanageable.
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