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Wednesday, July 23, 2014
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Published: Tuesday, 5/16/2006

Lending rate rumble

THE decision of the Federal Reserve Bank to jack up the pace-setting inter-bank overnight lending rate for the 16th straight time in three years, to 5 percent, a new five-year high, jangles painfully with the action of the Republican-controlled Congress and President Bush to cut taxes further for the rich.

The Fed's action might make sense, looking at what is happening in the economy from the point of view of controlling inflation. Creditors, the rich, and the banks, don't want the debt they hold to be devalued by inflation.

Inflation, on the other hand, can work to the advantage of people with credit card debt, home equity loans, variable rate mortgages, student loans, and other financial issues that touch the less-privileged end of our society, as long as their wages and salaries keep pace with inflation, as they seem to be doing recently.

It is also obvious that another spur to inflation is the approach to the economy of Congress, unrestrained by the Bush administration.

That is to continue to run huge budget deficits, $300 billion to $400 billion per year, that push up the national debt, requiring the federal government itself to borrow heavily in the market, including an estimated $2 billion a day from foreign sources - China, Japan, the oil countries, Western Europe. Those countries hold about a quarter of America's national debt, which now stands at $8.4 trillion.

The federal budget deficit as it is stated is also considerably less than the real figure: the Iraq and Afghanistan wars and some Katrina relief and reconstruction are being financed by supplemental funding. The most recent bill covering that shortfall was for $109 billion, all to be borrowed.

In fact, the fat tax cut that Congress has voted to provide the rich will also be borrowed money, estimated at some $69 billion. All of this while ordinary mortals, most of the American population, face breathtaking rises in the price of gas at the pump, fuel oil, and natural gas and virtually everything people buy.

And so it goes: The Republican Congress passes and the Republican president signs legislation giving another tax cut to the rich. The federal government will borrow money to cover the growing gap, including the tax cuts, fueling inflation, which the Fed will then raise interest rates further to suppress.

Ordinary citizens will see their credit card and mortgage rates go up in response and pay increasingly punishing energy bills for their cars and their homes.

There is something seriously wrong with this picture. What is wrong with it is an administration and a Congress that clearly don't care a hoot about the common man and his problems. Fortunately, Americans will have a chance to express their opinion of Congress at the ballot box this year.



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