Dear Mr. Berko:
Do you have any idea when the Federal Reserve will begin raising interest rates?
-TW, Punta Gorda, Fla.
Dear TW:
I will get to your question, but first I want to address a request from a recent letter writer. He wrote: "Some five or six years ago, you wrote an article about how a town in Arkansas had solved its debt problem. It made such good sense, and I'd like to see it again."
It's a hot, agonizing day in the imaginary small town of Loon Lake, Arkansas, probably 100 degrees in the shade under the old oak trees on Main Street. Loon Lake is on Old Route 62, some 23 miles west of Yellville. There are almost 1,000 residents, including a half-dozen old-timers who claim that their families lived there before the Civil War. It hasn't rained in seven months, and downtown's Main Street, last paved when Dwight Eisenhower was president, badly needs repairing. There's no traffic downtown, and the local economy looks liked the Dust Bowl of the late 1930s. There's little commerce; people are in debt; most townsfolk are living on credit and government checks; and the town's mayor is moving to Nicaragua to open a fruit stand. But help is on the way!
A tall dark stranger from Washington arrives, driving a black Cadillac Escalade ESV Platinum Edition with very dark tinted windows. He moseys around the public square, walks into Trout's Feed & Seed store-owned by Titus Trout's family since World War I-and buys a Stetson from Titus with a money-back guarantee, no questions asked. The stranger pays for the Stetson with a crisp $100 bill he brought with him from Washington. So wearing his Stetson, the stranger leaves Trout's, walks across Main Street to Elmer's Bar-B-Q and asks for a glass of water. In the meantime, Titus rushes from his Feed & Seed to the Piggly Wiggly two blocks down the street and settles most of his growing grocery account with Alva using the $100 bill he got from the stranger. After some muss and fuss and a little conversation, Alva takes that crisp $100 bill to Otis, who owns the tavern on County Line Road and has never seen a $100 bill, and pays off a large portion of his bar bill. About 10 minutes later, Otis, who is also pastor of the Loon Lake Missionary Baptist Church, quickly runs to the Sinclair gas station, six blocks east on Crooked River Road, and gives Buford the mechanic the $100, which almost wipes his debt clean. Then, five minutes later, Buford hops in his pickup, drives to Trout's Feed & Seed and squares his account with the original $100 bill. Titus now has the crisp $100 bill back, but only for a minute; the stranger doesn't want the Stetson, so Titus gives him a full refund. Then the stranger climbs aboard his black Escalade with tinted windows and returns to Washington.
Now, let's look at what happened here. Not a single soul produced a product. Not a single person performed a service. And not a single citizen of Loon Lake earned a dime. However, everyone in Loon Lake is more or less out of debt; access to credit has been established; and the town is now optimistic about its future.
I wish Federal Reserve Chairwoman Janet Yellen would zip her yap and stop hinting about raising rates. All this Yellen yacking about raising rates makes the market nervous. Now there's a growing gathering of Fed-watchers who believe that Yellen won't raise rates this year for fear that a rate increase would doom the market. The time to raise rates is when the economy is at cruising speed and is firing on all cylinders. That's when the economy is about to overheat; that's when inflation is about to exceed the Fed's 2 percent; that's when the economy is almost at full employment; that's when wages begin to rise; that's when labor productivity increases. (It just fell 3.1 percent.) That's when Yellen should raise rates! Most Fed-watchers can't see a single good reason to raise rates this year. Raising rates too early would be catastrophic and derail our tepid recovery. According to Noble laureate Milton Friedman, the Fed has done such a lousy job that it should be abolished.
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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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Published: Tue, Jul 07, 2015
