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Let’s Burst Soaring High-Interest Rate Balloon

Click to see original imageIt’s difficult for the layman to understand how high interest rates which depress the housing industry, prolong a business slowdown, and produce job layoffs is helping the country – especially when inflation continues unabated. lndeed many members of Congress have complained recently that the Federal Reserve Board’s policies to restrict the money supply simply aren’t achieving antiinflation goals. Just the other day Rep. Bill Alexander. D-Ark., charged in the House of Representatives that the Fed’s policies “have become a major component in the inflation problem rather than being the basis for a solution.” The prime interest rate escalated another painful point last week. Banks almost uniformly hiked the lending rate they charge their best corporate customers to 20 percent. matching the record high of last spring. Gary Shilling, a Wall Street investment expert. predicted the rate this year will be reflected in a business slowdown in 1981, leading to layoffs that would hit young people who are now “borrowing to the hilt” to fiance homes and start families. The harsh impact on small- and medium-size businesses has been especially evident in the automobile industry where dealers are caught between a slowdown in sales and high interest rates on money they borrow to buv cars. Rep. Ronald M. Mottl. DOhio, reported he had written Paul A. Volcker. Federal Reserve chairman. asking that he resign. For 15 months. Mottl said, the Fed “has pursued a policy of ignoringsteep interest rate increases as it tries to dampen inflation through control of the money supply. Yet today we still have double-digit inflation…” Rep. Jim Wright. DTexas. charged that the Reserve Board had deliberately encouraged the upward spiral in interest rates, choking off economic growth and endangering many businesses of long successful standing. “The Federal Reserve is not elected by anybody. Apparently its members feel they are not answerable to anybody but themselves.” Rep. Tim Lee Carter. RKy., said inflation has pushed the average cost of a home to $80.000. At today’s interest rates. young people simply cannot afford to buy homes. he said. Obviously it’s time for Congress and the President to examine anew antiinflation policies in tenns of their successes and failures and effects on the well-being of the people. While the Federal Reserve has the major obligation in charting policies, the legislative and executive branches cannot be relieved of responsibility. The new Congress and Administration should focus on the problem and provide the public with some answers on future initiatives and direction.