Countless financial soothsayers and Wall Street wizards were once members of a curious cult.
Their doctrine? The unshakable belief that interest rates had managed to find something resembling the fabled Fountain of Youth, leaving their numbers eternally low and never rising. The “Forever Low” brigade dismissed those of us who argued that high government debt was unsustainable and, partly because low repayment rates would not last forever, we should control spending.
True enough, I was one of those who didn’t understand that new Federal Reserve policy at the time meant that inflation would not, in fact, break out. I also didn’t see coming the next 15 years of super-low rates alongside growing government indebtedness and a money supply steadily inflated through what seemed like permanent quantitative easing.
When inflation warnings became hard to ignore, the Forever Low gang retorted that it was silly to worry because, in the worst-case scenario, “the Fed has the tool to bring inflation down.” That tool amounts to hiking interest rates to slow down the economy — which seems in direct contradiction to the belief that debt accumulation was OK because, you know, interest rates would remain forever low.
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