So the Fed is going to “taper” away the quantitative easing, the printing of money, in which it is currently engaged. Bernanke (or Larry Summers—shudder) will one day allow interest rates to rise back to normal levels. Don’t worry, the economy will emerge from this radical economic experiment and all will be well. You’ll see. Ben promises.
But addiction is a very tough disease to cure and right now the economy is completely addicted to free flowing money from the world’s central banks. Breaking the cycle will prove very difficult.
(From Real Clear Markets)
The low interest rates discourage savings and encourage people to take high risks, as well as dampening bank lending, making the economy sicker.
This is a bubble waiting to burst, and it will burst when interest rates rise to more normal levels. At that point the value of these risky investments will decline, and these older investors will be hurt. Plus, interest payments on the public debt will rise, increasing the budget deficit, which has been a trillion dollars a year for the past four years.