Bankers like river boat gamblers.

Bankers are supposed to be Conservative, cautious. The saying is that if you want a bank loan, you have to prove that you do not need it. The reason for this is that the bank must be careful to safeguard wealth, so it is increased and not destroyed.

Are today's bankers careful like that? Some are, but central banks have turned into river boat gamblers as they try to jumpstart economies by cheapening money. The problem is that as Ronald Reagan told us  a nation's economy is like an ocean liner. It takes a lot of space and time to turn it. So, if a national bank makes a mistake, by the time we see the problem created, it is already too late to prevent it. Let's look at some of the problems:

1. The interest rate dilemma.
In order to increase lending, the FED reduced interest rates to almost zero. In the meantime, the National Deficit reached $18T. An increase of 1% in the interest rate will swell the deficit by nearly $200B. Some in the FED tell us that it is no longer a question of IF but WHEN and HOW MUCH interest rates will rise. There are a couple of other wrinkles. Raising rates will negatively impact borrowing, but NOT Raising will stoke inflation.

2. Market anticipates rate rise.
We have two reactions to the anticipated rate rise. a) A drop in stocks and b) An influx of European money driving up the US Dollar.

3. Will the ending of QE drive up rates?
Almost certainly. If the FED will not buy the Treasuries, rates on them will rise so they can be sold.