Interest rates have been one of the major factors behind the out of proportion growth of banks. Since the recession hit in late 2008, things have never been the same again. A lot of measures ranging from the great Stimulus package to the cost cutting have been deployed to make out a better picture. Interest rates rise once we have got some inflation to control or decrease the over all demand for shortage of funds in the market. Sadly yet ironically we haven’t seen any of the above scenarios taking place throughout the year and analysts don’t even see it happening in the near future. The biggest question that hasn’t yet been satisfactorily answered is that what will happen if the things keep moving at snail’s pace and status quo remains. A lot of banks have faced closure and lots of them are in the pipeline struggling to get on and move with the recession scenario. Most important driving factor behind the modern economies is the capitalism and the rule of the fittest to survive, that has encouraged consumer spending. Things would have been different if all the economic progress wouldn’t have been pegged with the consumer spending only without taking into consideration the strict measure that would have resolved serious issues like outsourcing and globalization.
Neither the inflation is improving nor do the data suggest it will, ruling out the possibility of increased consumer spending rise in interest rates. For example The Bank of England is struggling to cut the deficit and is relying on actions like cuts in spending and tax increases, which are undesirable in prevailing times. How can then the bank afford to increase the interest in the near future. With Britain’s deficit nearing 12 % in 2010, it seems that future scenarios will unfold even trickier situations to handle. US economy on the other hand has a 13% budget deficit which has broken all its previous records. It has also been experiencing the juggling of different monetary and fiscal policy measures and many banks have been out of business. This has put the world’s banking industry into the “what to do scenario” when every thinkable measure has been put in place with little to no impact in different parts of the world. Veteran investor and one of the richest billionaire of the US, Mr. Warren Buffett has also pointed out to different problems arising in the future due to existing hard to get rid of scenarios. He stated that ‘Legislators will correctly perceive that either raising taxes or cutting expenditures will threaten their re-election. To avoid this fate, they can opt for high rates of inflation, which never require a recorded vote and cannot be attributed to a specific action that any elected official takes.’ ‘Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt.’ Only future will tell what destination the current course of actions will lead to, but a lot of sense has to be put in these actions before meaningful results are to be expected.
