The Federal Reserve recently announced their first interest rate cut in four years. The official explanation is that they want to encourage job growth. But how will this interest rate cut affect the average American family?
From Peter Reagan for Birch Gold Group
You may have heard the recent news that the Federal Reserve cut interest rates by half a percent (50 basis points).
Some talking heads chattering about the economy have been playing up this action as a sign that the economy under the current administration is doing well. Which is odd, considering that lower interest rates are an attempt to increase debt creation and (hopefully) economic growth.
Other commentators are more forthright about the fact that the interest rate cut is an attempt to jumpstart the job market – at worst, an outright political decision.
Today I’d rather focus on what this means in the long run, and how this change will realistically play out. First, let’s check in and ask how the average person is doing…
How is the American family really doing?
The fact of the matter is that many everyday Americans are struggling. Inflation over the last several years has hit grocery bills and utility prices, not to mention other necessities in our modern world, so hard that many Americans have to decide between eating lunch or paying the electric bill.
To make matters worse (and more stressful), job prospects in the current economy aren’t rosy. Sam Sutton noted for Politico:
The unemployment rate is meaningfully above where it was last year. Rising prices and higher interest rates have put homeownership out of reach for many Americans. A growing number of consumers now expect to miss credit card or auto loan payments. And high rates have slowed the pace of corporate mergers and acquisitions, potentially impeding economic activity.
That’s right, Americans are already having difficulty being able to buy groceries and keep roofs over their families’ heads, but what does the Fed do? Cut interest rates
What does cutting interest rates do for the economy?
The official line of thinking at the Fed and in most administrations in the White House is that cutting interest rates makes borrowing money less expensive which will lead to companies borrowing money in order to invest in growing their companies which will lead to more jobs.
In a nutshell: Lower interest rates equals more debt which increases employment.
And it’s possible that lowering interest rates can increase job growth over a period of time. After all, growing companies tend to hire more people. Which is fine, so long as those companies were sustainable in the first place – see Ron Paul on the connection between inflation, malinvestment and economic crashes.
We’ve seen a lot of job growth already – but they weren’t the sorts of jobs most people actually want…
Where are all these new jobs?
I think that you would agree that there is a huge difference between more people having full time jobs with benefits versus the same number of people getting part-time jobs without benefits.
The average person is more likely to be able to pay their bills with the full time job option.
The problem with the reporting on job figures is that, if you look to the government to clearly tell you what is going on, they won’t. In fact, the Bureau of Labor Statistics explicitly states that they report both full time and part-time jobs the same way when calculating the number of new jobs in the economy. If the economy adds the same number of part-time jobs as the number of full-time jobs that it loses, that is an economy that is losing ground.
And that kind of non-specific information isn’t going to help you get a clear picture of the reality of the situation.
Some people state pretty clearly, though, that the new jobs that we’re being told happened over the last year wasn’t the kind that helps people to get out of and stay out of poverty. Louis Jacobson, writing for Politifact, revealed something that recent Presidential candidate Robert F. Kennedy had to say about those jobs:
On March 31 on X, Kennedy accused the federal government of distorting economic data. He added, “The much-trumpeted job growth in the last year was ENTIRELY part-time jobs.”
Even if Kennedy is only partially correct with those figures, that paints a picture of struggling families in America who have difficulty feeding their families.
So, you may be asking, “What does this really have to do with me? I already have a good, stable job.”
It’s a fair question, which leads us to…
The real-world effects of cutting interest rates
When the Federal Reserve cuts interest rates, yes, that does make borrowing money cheaper. At the cost of higher inflation.
Essentially, lower interest rates benefit debtors by transferring wealth away from savers into the hands of borrowers. When we consider that the federal government is the greatest debtor in history, it’s easy to see the political side of lower interest rates.
But when people are struggling to make ends meet, they often borrow money, often through high interest rate credit cards or payday loans, to take care of immediate needs. Lower interest rates mean that people will be borrowing more and more money just to get by.
And if you know anything about how loans happen with a fiat paper money economy like we have, an economy that uses fractional reserve banking to create money to loan out, then, you know that encouraging the borrowing of more money creates more inflation over time, which, then, has the average person struggling even more.
Their money is worth less and less, and they owe more and more money to the banks which they struggle to repay. It’s a vicious downward cycle.
So, even if you have a good, stable full-time job, this interest rate cut will drive inflation that will keep your paycheck from being enough.
Economic enslavement or freedom?
Proverbs 22 says that “the borrower is the slave of the lender.”
Maybe this is what Thomas Jefferson was thinking of when he wrote, “It is incumbent on every generation to pay its own debts as it goes.”
And what Benjamin Franklin was thinking of when he added these lines to Poor Richard’s Almanack: “Think what you do when you run in debt; you give to another power over your liberty. That, as a matter of fact, is the case.”
The implication is that you should do everything that you can not to owe people money, and setting aside concepts of “good debt” versus “bad debt,” the fact of the matter is that debt doesn’t go away. You either repay it, or if you default on it, you end up being hurt economically due to the fallout from that default.
Your life is not your own if you are indebted. If you’re totally dependent on debt-based currency and a debt-based economy.
But there is a way to own your own life, to win your economic freedom and not be subject to the whims of a fiat money economy built on sand: Diversifying your savings with physical precious metals such as gold and silver.
Both gold and silver have long enjoyed a treasured status among the wise thanks to the intrinsic value that precious metals maintain.That means their worth isn’t based on an IOU or a promise to pay. That means their price tends to go up when the cost of living rises due to inflation.
And, when you own precious metals, that means that the Fed can’t pickpocket your purchasing power through inflation. Your nest egg is that much more solid, stable and recession-resistant. And that’s a different kind of freedom – free from worries about the daily ups and downs of the economic cycle.
To find out if diversifying with precious metals is right for you, read more about the power of physical gold. In fact, just about the only thing better than owning physical precious metals is owning them in a tax-advantaged precious metal IRA.
We can help – Birch Gold Group are the precious metal IRA experts, after all.