Businesses would prefer to see low interest rates. It allows them to borrow cheap money and allows their consumers to keep spending based on the same dynamic.
If people are spending, businesses can grow revenues- maybe even margins.
If businesses can grow, then they can hire- it’s supply side economics.
Plus, if people are spending money, then new businesses can form.
So, what’s the harm?
First, or course, there is inflation, which once it begins, is hard to rein in and then it takes a lot more dollars to buy more things that consumers have already been buying.
But- then we have the idea of a bubble in one or more assets. A bubble is a disconnect between value and price. Value can be subjective, and debate-able, which makes identifying a bubble difficult.
What is the risk in a bubble? The risk is that everyone decides at once for one or more reasons that there is a bubble and they want to sell a given asset- like what happened in 2007 with real estate.
People suddenly realize that a social issues has arise. Incomes are not in line with houses. So, is a bubble popping a social event. Yes and no. People realize that they no longer want to pay the price of a house because they know that in the future, there is o one who will pay more. In other words, based on incomes- prices are too high and no one wants to be stuck with the asset when the music stops. SO, a panic ensues. And panic begets panic and selling begets selling. Once this happens, it weaves itself through the whole economy as people stop spending out of fear and out of a lack of liquidity or confidence in their asset.
This problem could potentially be in the works with housing at this moment. Why buy a house if you can rent more economically- especially if you would be paying top dollar for your house at a higher interest rate.
Another way that a bubble becomes a problem is if the economy has a shock. Let’s say oil prices spike. For example, the new tax rate-cuts and cap-ex expensing laws will encourage companies to build and buy equipment and machinery. This will drive up the costs of the commodities that go into these items- metals- energy. So, suddenly, consumers can see that their wages are not rising, but their energy and borrowing cost are. This can shut down spending.
Bubbles are not automatic. They must be foreseen by keen observers who assess risk. Often, those who see bubbles are early in these observations- too early- and sometimes they are derided by people who consider themselves “positive” people. Also, of course politicians and purveyors of assets (such as stocks and real estate) will put forth theory after theory as to why consumers and investors should not be worried.
Eventually, these theories get harder and harder to swallow. No bell will ring when a bubble has been formed.
Neil S. Siskind, Esq., President
The Siskind Law Firm
Neil Siskind is the Founder & Chairman of The Fatherhood Assignment
Learn more at: http://www.neil-siskind-the-fatherhood-assignment.org/
Neil Siskind is the Conservator of the Neil S. Siskind Nature Preserve
The Neil S. Siskind Nature Preserve is over 7 acres of environmentally-pristine waterfront land in a magnificent setting along New York’s majestic Hudson River. The Preserve includes a variety of species of animal and plant life, and is a precious example of the thoughtful maintenance of New York’s priceless open spaces. The land’s uses are limited to outdoor recreation such as hiking and climbing, and the study of ecology, nature and land use. The Neil S. Siskind Nature Preserve allows for the intelligent contemplation of our valuable natural resources and the most effective ways to maximize them and keep them protected.
Neil Siskind, Founder, “National Fatherhood Day” – March 29th
To encourage recognition of the needs of boys and girls who are living without fathers or father-figures in their lives.
Read about the non-profits and charities whose missions Neil Siskind supports and promotes: www.neilsiskindsupports.com
Caring is Free®
You can read what clients and associates say about Neil Siskind at: http://siskindlawfirm.com/neil-siskind-bio/.
Neil Siskind’s Volunteer Work:
– Memorial Sloan Kettering Cancer Center, Volunteer
– Memorial Sloan Kettering Cancer Center, My Fundraiser- Help Neil Siskindhelp children with cancer to be more comfortable: http://mskcc.convio.net/site/TR?px=3182108&fr_id=2632&pg=personal
– Make-A Wish Foundation- Help Neil Siskind make sick children’s wishes come true by creating your own fundraiser: Neil-Siskind/Help-Make-A-Child-Smile.htm
– DonorsChoose.org- Donate to one of my needy public classrooms: http://www.donorschoose.org/NeilSiskindGiving
– Champion Children– We seek to inspire people through stories of children who have overcome challenges: http://siskindlawfirm.com/neil-siskind-champion-children/
Neil Siskind’s Pro Bono Work:
– Saving Senior Citizens- Protecting New York’s senior citizens from fraud and financial abuse www.savingseniorcitizens.com
– Senior FreeStart Business– Pro Bono: We seek to help put senior citizens in the right direction so that they can face the challenges of the modern economy: http://siskindlawfirm.com/free-start-business/
– Veteran FreeStart Business– Pro Bono: We seek to help put Iraq and Afghanistan war veterans in the right direction so that they can face the challenges of the modern economy: http://siskindlawfirm.com/free-start-business/
– In development: The Neil S. Siskind School of Hope: A free school to teach inner-city youths the skills of entrepreneurship and importance of economic self-sufficiency.
Neil Siskind’s Government Work:
– Suffolk County District Attorney’s Office, Boston, MA, 1994, Intern
– Office of Senator Christopher J. Dodd, Newington, CT, 1992, Intern
– Hartford County Department of Probation, Hartford, CT, 1991, Intern
Neil Siskind’s Community Assistance:
Financed & operated a legal clinic providing low-cost legal services to struggling Long Islanders during the recession to help clients resolve debt, organize finances, and launch new businesses.
Neil Siskind’s Professional Curriculum Vitae: http://neilsiskind.com/
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