Can Credit Card Interest Rates be Capped?
April 3, 2025
The American politics is heating up in anticipation of the 2020 Presidential Election. Democrats are unveiling what appears to be a populist socialistic agenda. Amongst the Democrats, Bernie Sanders, in particular, is hell-bent on enacting policies which can be considered to be socialist. Bernie Sanders has found an ally in Alexandria Ocasio-Cortez as she too…
What is the American Dream and why was it so Good while it Lasted? For a long time, the United States was seen as the Land of Milk and Honey where anyone and everyone with some talent, lots of hard work, sheer grit, and dogged determination could make a career for themselves and raise a…
Agriculture is a prehistoric occupation. In fact, it is said that human beings only started building civilizations after they discovered agriculture. But agriculture has always been an inherently risky business. Thousands of years have passed between the discovery of agriculture and the modern society that we live in today. However, the modern farmers are exposed…
We discussed how central banks around the world are printing money and pumping in liquidity into the global economy. This has the result of creating asset bubbles and equity bubbles wherein the hot money flows into real estate and stock markets leading to speculative frenzies instead of real wealth creation. This is one of the reasons why the global economy is not growing despite infusion of liquidity into the system by the Federal Reserve and other central banks.
The other reason is that though companies and corporations are sitting on piles of cash, they are not investing in productive assets. This is happening because of a loss of confidence in the system that started with the collapse of the investment bank, Lehmann Brothers in 2008.
In other words, the fact that banks and businesses are wary of lending and investing in new ventures because of the anticipation of another economic crash is the driving factor of why the global economy is not growing despite healthy infusions of liquidity.
Apart from this, the other reason is that there is too much debt in the system and most of the liquidity is going into repaying the debt that has accumulated to a large extent. The cardinal principle here is that more debt cannot be the solution to the existing debt and as any individual who is neck deep in debt will realize eventually, either he or she has to default or pay back the debt.
Taking on more debt to repay the existing debt leads the individual and by extension the economy into a downward spiral, that leads nowhere.
Further, consumers in the US and in Europe have lived way beyond their means all this while and hence, they are facing the financial reckoning day when their debts come due and they must either pay up or face bankruptcy. This is happening at the level of companies and governments as well as they are now repaying the debt that they accumulated during the so-called “boom years” and the bills are coming due.
The third and most important reason why the global economy is creaking is that despite how much money is printed, unless there is growth in the real economy, the only event that happens with printing money is speculation.
For growth to actualize there must be an adequate supply of resources and given the scenario where resource depletion is happening, economies can grow only if there are abundant resources. Though experts in recent months have pointed to the boom in shale oil and natural gas, the reality is that the key resource, oil, and minerals, along with metals are facing a downward slope into depletion.
The key aspect here is that when too much money chases the available or reducing goods and services, these goods and services go up in value and hence lead to inflation. Without pronouncing the end of growth, it must be remembered that infinite growth is not possible in a finite world of resources and hence, there are limits to growth.
As mentioned earlier, when growth does not actualize, there is no point in printing money. This is the central conundrum that the global economy is facing in recent years.
Finally, with ageing populations and more pensions needed for these people, the debts are being increased on the future, which means that our children would have to pay these debts. The clear implication here is that businesses grow by betting on future growth and investing capital expecting future returns.
When the future scenario is itself bleak, there is little chance for the businesses to grow. This drags the growth further and coupled with the debts that have to be paid, the coming generation has to pick up the tab.
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