Who Was The Biggest Benefactor Of The 2008-2009 Economic Collapse?

Did you know that the biggest benefactor of the 2008-2009 world economic collapse was the US government, AKA the US Treasury AKA The FED?

How did they benefit, you may ask? By keeping interest rates as low as possible, this has benefitted the US Treasury in many ways:

1) Millions of people re-financed their home mortgage to about half what it was in 2006-2007. When people have less mortgage interest payments to deduct on their tax returns, by default they pay more taxes to the US and state governments.

2) Low interest rates forced people into the stock market looking for higher returns on their money via dividends and growth:

a) When people get higher dividend yield on their money they pay more taxes.

b) When more people invest, it forces the stock markets up which give most investors large capital gains; many of the intelligent investors sell to take some profit, which means they pay capital gains taxes and, again, the US government collects more revenue.

3) Low interest rates mean more people build and buy homes; when that happens, they tend to buy major appliances and this means manufacturers of large household goods are compelled to hire more workers to keep up with demand, and when more people are working, they pay more taxes.

4) Low interest rates mean more people buy new cars and, again the more cars, vans and trucks the automobile companies sell, the more parts suppliers have to hire more people to keep up with the demand and, yet again, the US Treasury collects more revenue from the newly hired.

In addition, the biggest reason is it also gives the FED the ability to borrow hundreds of billions more money from foreign countries, such as China and Japan, at a very low interest rates.

As matter of fact, the FEDs have cut their borrowing cost by more than half since 2006; you just have to look at the 10 year and 30 year treasury bills interest rate rapid decline.

One of the most successful moves the US Treasury made in the past 30 years is to keep interest rates as low as possible, such as taking the Discount Rate to 0.75 (Rate that banks borrow money from the FED) and the FED Fund Rate to 0.25 (The interest rate at which banks and other depository institutions lend money to each other, usually on an overnight basis), and when that did not work, they started buying bonds in the amount of over $2 Trillions with “phantom type money” See Video Here http://bcove.me/inzcu4d9  (interest rates have an inverse relationship with bond… the demand for more bonds drives bond prices upwards and this, in turn, will send the interest rates down). In doing so, they borrow new money at half the existing rate that they were paying on the trillions they owe. They then pay off these higher rate bonds and are now paying at half the borrowing cost.

In other words, just like most consumers refinanced their mortgages by getting home loans of under 4% to pay off their 7% or higher home loan, the US government did the very same thing.

Here are some good numbers to prove my point. Per the 2014 January United States Department of the Treasury monthly, publication www.fms.treas.gov: The total US Deficit was 184 billion; that is they took in 961 billion and they spent $1,145 trillion. If you go back at the same time in January of 2009, there was a total deficit of 569 billion as they spent $1,342 trillion and only got income of 773 billion. A more detailed look at the current monthly trend is that in January of 2014 alone, the deficit is only 10 billion; by comparison, in January of 2009, the deficit was $83 billion.

What should you do?

1) Well, if you have any loans, personal or business that are at a higher interest rate than the current market conditions, do what the Fed did and refinance to a much lower rate.

2) If you ever dream of starting a business, this is your time to get that business loan before rates head back up, because they will.

3) If you had plans to further your education by getting a four-year degree, your MBA, PhD., or even become a doctor, this would be a good time to research, and apply for, very low interest rates student loans!

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Sherwin Brown

About Sherwin Brown

Sherwin has been an entrepreneur since he was twelve years old. He currently teaches, writes, and speaks to people about how to improve and safeguard all aspects of their financial portfolios.

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