This seems to provide more evidence that aggregate debt reduction leads to demand reduction, money supply contraction, and deflation.
Making borrowing at the commercial level nearly free, mortgage rates are barely above long term inflation, and retail debt (CC, car loans, etc) is fairly cheap has at most slowed the debt reduction, but it continues despite the best efforts of the fedres.
Referring back to a previous thread on this topic, the private debt levels must come down. It was on an unsustainable path to infinity. It wasn't a real economy, with real sustainable demand.
So at this point, it seems convincing to me that we need to continue to drive debt out of the system. Higher borrowing costs would do that, ergo higher fedres rates.
But the deflation that higher fed funds rates would cause would be 1930s level. So, to balance the deflation, direct cash deposits (yes, printing money) from the fedres to the tax filer might be in order. Something small at first, to test the waters of how much inflation responds to direct cash injections, but build up slowly to the right balance of inflation rates (stable prices), unemployment, business investment, and declining debt.
Direct cash doesn't punish savers, and it should help rescue the borrowers on the margin of bankruptcy. In fact, it is the best solution for savers. They get cash, plus interest rates for borrowing go up so they can finally get decent REAL returns on bonds, securities, and savings.
Banks will get more people capable of paying back loans.
Business should see a good boost from increased demand.
Unemployed should see a modest boost from business picking back up.
Seems to me that the only one to lose out will be gov't (local+state+fed). Their borrowing costs will go up, but this may be offset by increased tax revenues.
At this time, this seems like the best balance of solutions to me. Win for the saver, win for the retail borrower, win for the bank, win for business, possibly minor loss for gov't.
