Recent decisions by the Federal Reserve, intended to keep interest rates low, will hurt taxpayers in the future, according to Duquesne University economist Antony Davies.
The Fed bailed out financial institutions in 2009, and chairman Ben Bernanke has continued to exercise his judgment through a series of stress tests. Those stress tests can influence the market by flooding it with capital and potentially handicapping the U.S. economy in a global market.
In an interview with The Daily Caller, Davies explained the consequences of artificially low interest rates and government spending.
“We tend to look at interest rates from the perspective of borrowers, so we see low interest rates and we think this is good because my credit card charges me less, or I can get a mortgage at a lower interest rate. … That’s true but what we’re forgetting is that there’s another batch of people who save money,” he said.
Davies discussed the implications of artificially low interest rates on public savings used for pensions.
“When it comes time to pay retired state employees … the state turns [to] taxpayers and says ‘well, were going to have to increase your taxes to make up for these pension obligations.’”
“We’re rapidly reaching a point at which the Fed has little choice but to keep interest rates low, what’s driving that is the federal debt,” Davies explained.
The Obama administration is following “half of the Keynesian rule,” according to Davies. Obama has increased government spending in order to boost the economy. But as the economy recovers, spending hasn’t been reduced.
“[Historically] there’s no relationship between government spending and economic growth, ” Davies noted. “Government doesn’t create jobs; it moves jobs. At the end of the day, what the federal government is doing is taxing one group of people and spending somewhere else. Where it taxes, jobs disappear and where it spends jobs appear.”