Former Fed Chairmen Greenspan and Bernanke talked about, and still talk about a “conundrum”, where long term rates fail to follow the target Fed funds rate higher. But, there is no conundrum. Rising interest rates will cause business costs to rise, earnings to decline, and multiples to compress for those reasons, and because Treasury yields and money markets become more competitive with less risk. This would make asset values decline. It’s quite simple.
When you raise interest rates and reverse excess liquidity that has been used to fuel asset bubbles, rather than to raise incomes, of course, if you withdraw that liquidity multiples and values will compress- if not crash.
Once upon a time, business growth led to wage growth. Many factors have changed that- the size of companies in industries stomping out competition for labor, globalized work forces, and Technology so that people can shop for the same products from multiple vendors in multiple places, rather than only those within proximity of the home or office.
The economics of product sales and labor have changed. It’s that simple. Liquidity makes the big get bigger, and the cheap products get more scale and get cheaper, and labor is from all over the world (like products), and the scale that develops leaves less players in each industry, so they control wages by reducing competition for workers.
Businesses, to compete with China and other nations that lack labor rights and decent wages, explore the world to push down labor costs, not increase them, and to “scale” their customer bases to push down prices and labor costs.
If incomes are not causing growth, but, rather, liquidity is the cause of growth by allowing people with stagnant wages to buy homes at low interest rates, by providing companies the fuel to grow without raising wages, by people using cheap money to buy and sell assets that are supposed to be connected to incomes- like homes, then higher rates will not slow down the things that should cause growth- like incomes- but, rather, will deflate assets that have grown only due to liquidity being passed around by banks.
Liquidity is used for different reasons than in the past. Individuals to increase incomes, and institutions for profit, borrow cheap money to make homes into stocks and bonds and trade on them.
Higher interest rates no longer reflect growing price and income inflation- which is why bond investors won’t choose to buy stocks and commodities as interest rates rise- because there is little inflation in the prices in those places. The inflation is in the assets that have built-up from the imbalance between incomes and assets and lop-sided growth that rewards stock holders, but not labor.
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
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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