Federal Reserve Preventing Job Growth by Keeping Interest Rates Too Low

By keeping interest rates at artificially record low levels, the Federal Reserve is preventing job growth from occurring in the United States. Significant job growth will not occur in any economy where lenders cannot earn a sufficient return on their loaned money. Without the opportunity to earn a sufficient return, lenders simply will not take the necessary risks to foster job growth with their money.

By lenders, I am talking about everyone who loans other people their money. This includes all the people with money deposited in banks and other financial institutions in the United States. Whenever someone deposits money in a bank or other financial institution, they are effectively loaning the bank or financial institution their money. In return, they are paid interest.

Lenders are Earning Too Little Interest to Take Risks

Due to the Federal Reserve keeping interest rates at artificially record low levels, people with money deposited in banks and other financial institutions are earning ridiculously small returns from interest on their money. The returns are so small, the vast majority of lenders are unwilling to risk their money, and job creation remains negligible.

Money Supply Needs Higher Interest Rates to Grow

Without sufficient returns on loaned money, the money supply in any economy will not grow without continual government intervention.By government intervention I mean programs like quantitative easing. Quantitative easing really means the government is just printing money out of thin air and releasing it into an economy. With artificially record low interest rates, and subsequent little or no interest being earned by lenders, the only way for a money supply to grow is for a government to keep printing and releasing money into an economy.

Higher Interest Rates Will Spur Significant Job Creation

If interest rates in the United States were not being kept at artificially record low levels, lenders would start earning sufficient levels of interest on their money. The money supply would start growing of its own accord, and lenders would start taking risks with their money again. That is what is necessary to get significant job growth going again.

United States Now in Same Place as Japan Economically

Since the late 1980s, the Bank of Japan has kept interest rates at artificially record low levels, and the Japanese economy has seen nothing but sporadic job growth for the exact reason I outlined above.

Federal Reserve officials have been quoted over the last few years as saying that the United States is different then Japan. That the Federal Reserve won't allow or tolerate what has happened in Japan for over two decades to happen here. As usual, Federal Reserve officials have shown they have no idea what they are talking about.

Things have been so bad in Japan over the last 25 years that China has now overtaken Japan as the second largest economy in the world. If Japanese lenders had been able to earn sufficient returns on their loaned money over the past 25 years, Japan would have much faster economic growth, and job growth, and the Japanese economy would still be ahead of China.

Federal Reserve is Preventing Job Growth by Keeping Interest Rates Too Low

As long as the Federal Reserve keeps interest rates in the United States at artificially record low levels, we are heading down the same road as the Japanese. The Federal Reserve is preventing significant job growth in the United States by keeping interest rates at artificially record low levels.

Low Interest Rates Do Not Spur Job Growth or Cause Inflation

The idea that artificially record low interest rates will spur job growth is a fallacy, which I explained over 2 1/2 years ago in Low Interest Rates Cause Low Real Economic Growth. It's also a fallacy that artificially record low interest rates will cause inflation. Inflation will occur if the Federal Reserve raises interest rates too much, which I explained in Is Silver Still a Good Investment?

How the Federal Reserve Caused Economic Crisis, Which Joe Dorish Warned About in 2007

Finally if you want to read about how the Federal Reserve caused the current economic mess see Real Questions for the Federal Reserve. I warned the Fed back in 2007 that they were going to cause a crisis if they did not change course in Are We Headed for Deflation?