DA - Interest Rates - Michigan 7 2023 STARTER

Interest Rates DA
Notes
Argument Overview
This disadvantage argues that if the federal government pursues significant fiscal redistribution and expansionary economic policy via the topic mechanisms then it would lead to the Federal Reserve raising interest rates to combat the real or perceived inflation that results from the action of the affirmative plan. The Federal Reserve has been raising interest rates to combat the current round of inflation, but the Fed signaled at the June meeting that inflation is cooling off and we are nearing the end of the rate hike cycle. A change in course would weaken an already fragile economy.
As the central bank of the United States, the Federal Reserve is guided by a “dual mandate” obligation which tasks it with simultaneously preserving price stability (low inflation) and maximum employment (low unemployment). The Federal Reserve uses monetary policy to pursue these goals. Rate hikes are an example of contractionary monetary policy that are designed to reduce overall aggregate demand throughout an economy. This, in turn, helps reduce inflationary pressures and bring an economy back to equilibrium; however, aggressive rate hikes can trigger a “hard landing” and bring about a recession if that Fed overshoots its target. The disadvantage argues that this would be the likely outcome if the Fed reverses course and continues down the path of raising interest rates.
For background reading on the mechanics of this argument, consider reviewing the following:
Federal Reserve System: What it is and How it Works (Investopedia)
Monetary Policy: Meaning, Types, and Tools (Investopedia)
How the Federal Reserve Devises Monetary Policy (Investopedia)
Federal Funds Rate: What It Is, How It's Determined, and Why It's Important (Investopedia)
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1NC – (Econ/Emerging Markets)
Fed rate-hikes are winding down and inflation is cooling – but more time is required for the economy to reach equilibrium
Cora Lewis, 6/14/23, Associated Press, “What you should know as the Fed gets closer to the peak of its rate-hiking cycle,” https://apnews.com/article/federal-reserve-interest-rate-hike-pause-consumers-d44a6f58eb03ec5edeff78294a167053, mm
The Federal Reserve’s decision Wednesday to leave interest rates alone for the first time in 11 meetings raises hopes that it may be at least nearing the end of its rate-hiking campaign to cool inflation. That said, the Fed’s policymakers indicated that they envision potentially two more hikes this year — a more hawkish forecast than had been expected. And even after the Fed has stopped hiking, it’s likely to keep borrowing rates at a peak for months to come. Consumers would still have to bear the weight of higher-cost auto loans, mortgages, credit cards and other forms of borrowing. Still, some people may feel encouraged by the possibility that loan rates might not rise much more. And in the meantime, people with savings accounts are enjoying higher yields than they have in years. Fortunately, that isn’t likely to change anytime soon. Though the Fed hasn’t likely reached the top of its rate-raising cycle, it’s getting closer. That doesn’t necessarily mean that relief is on the way, especially with the forecast of possibly two additional hikes this year. “Even once the Fed stops raising interest rates, borrowing rates are still very, very high,” said Greg McBride, Bankrate.com’s chief financial analyst. “Some of these rates are higher than many consumers have ever seen.” McBride noted that credit card rates, in particular, are at or near their all-time peaks, mortgage rates have more than doubled in two years and auto loan rates have reached their highest level in about a dozen years. Even if rates were to hold steady, borrowing costs across the economy will remain much higher than they were in recent years. Some consumers may struggle to continue making loan payments on time as they simultaneously face inflated prices for many goods and services. “That means debt repayment has taken on a renewed urgency,” McBride said. “If you have credit card debt, that is a top priority to get paid down.” Matt Schulz of LendingTree suggested that consumers who have debt should “assume that rates will continue to rise and focus on paying down their balances as quickly as possible,” to err on the safe side. Card users, he said, might consider asking their issuers to offer a lower Annual Percentage Rate (APR), if possible. In a recent report, LendingTree concluded that a majority of cardholders who had asked their card issuers for a lower rate received one. The average reduction was significant — 6 percentage points. “It is well worth your time to make that call,” Schulz said. Right now, the average APR on a new credit card offer is a towering 23.98%, according to LendingTree. “And they’re probably going to still creep higher in the immediate future,” Schulz said, even if the Fed doesn’t raise rates Wednesday. For a typical credit card already in use, the average APR was only slightly lower — 20.92% — according to the latest data from the Fed. Loan rates for new vehicles have stayed constant for the past few months, at an average of about 7%. That isn’t likely to change even with the Fed leaving rates alone for now, said Ivan Drury, senior manager at Edmunds.com. Auto loan rates, Drury said, tend to reflect buyer demand for vehicles more than they do the Fed’s interest rate decisions. Auto sales, while still way below pre-pandemic levels, remain fairly strong, automakers are selling at still-high prices and profits are solid. Unless sales were to slow, companies and dealers won’t likely reduce prices or offer subsidized loan rates. “Everyone seems too content,” Drury said. With loan rates probably unlikely either to rise or fall significantly anytime soon, buyers who need a vehicle may increasingly come off the sidelines. Autos are generally staying on dealer lots for only 35-40 days before being sold. Until they start sitting for 60 days or more, Drury said, automakers probably won’t cut prices. New vehicle prices averaged $47,892 in May, 1.3% below the peak in December. Yet any decline has been offset by costlier loan rates, which have surged nearly a half point over the same period. Prices for used vehicles also dropped somewhat last year but remain comparatively high. The national average in May was $29,387, down about 5% from the May 2022 peak but nearly $9,000 more than the average before the pandemic. (As of May, the average used-vehicle loan rate was about 11%.) “Make sure your credit is in tip-top shape, shop around for financing and have an offer in your back pocket before you go to the dealership,” said Bankrate’s McBride. Ken Tumin, a banking expert and founder of DepositAccounts.com, noted that while yields for savings accounts and certificates of deposit are the highest they’ve been in a decade, the pace of increases is slowing. With the Fed likely nearing the end of rate hiking, any further increases in yields may be comparatively small. “Banks will have reason to slow their deposit rate increases,” Tumin said. Still, it’s worth noting that these accounts are much more rewarding than they were as recently as a year ago. The average online savings account yield is now 3.98% — up from 3.31% at the start of this year and from 0.73% from a year ago, according to DepositAccounts.com. The average yield on an online one-year CD is 4.86%, up from 4.37% at the start of the year and from 1.49% a year ago. McBride suggested that consumers comparison-shop to find the best rates on high-yield savings accounts. He noted that online banks, in particular, are paying yields of 5% or better. “Savings rates are the highest we’ve seen since the financial crisis,” he said. “Banks that need deposits — like online banks — are competing aggressively by paying higher rates.” By contrast, McBride said, “brick-and-mortar banks, who have a surplus of deposits — their rates reflect that. They will intentionally have lower rates, and some of them have no intention of catching up.” Overall, he noted, consumers can enjoy savings rates that haven’t been this high in 15 years. “That’s not a bad place to have money parked,” said McBride. The Fed has clearly achieved progress. Inflation, which peaked above 9% last year, is less than half that level now. Yet the latest inflation readings remain well above the Fed’s 2% target. Many households are still feeling heavy financial pressure as a result. Reducing inflation back to the Fed’s target level will require more time. “That might mean the Fed is going to have to hold rates higher for longer, and it may even mean boosting rates further in the months ahead,” McBride said. The central bank has now raised rates at its fastest pace in 40 years. “That doesn’t mean the Fed is going to start cutting rates or that other rate hikes this year are completely out of the question,” said Jacob Channel, senior economist for LendingTree. “It just means they may be willing to hold rates where they are and let the economy continue to settle without more rate-related prodding in the immediate future.” If the economy does cool, Channel predicts that mortgage rates may end the year closer to 6% than to 7%. (The current national average for a 30-year fixed-rate mortgage is 6.71%, according to Freddie Mac.) “There’s a very significant cumulative impact (of rate hikes), but it doesn’t hit all right away,” McBride said. For the Fed to leave rates alone, at least for now, “gives them a little bit of time to evaluate the broader economic and inflationary landscape to see if further rate hikes are warranted.”
Expansionary fiscal policy will trigger further interest rate hikes – that decimates the financial sector and spreads globally
Tobias Adrian and Vitor Gaspar, 11/21/ 2022, International Monetary Fund, “How Fiscal Restraint Can Help Fight Inflation,” https://www.imf.org/en/Blogs/Articles/2022/11/21/how-fiscal-restraint-can-help-fight-inflation, mm
Government support was vital to help people and firms survive pandemic lockdowns and support the economic recovery. But where inflation is high and persistent, across-the-board fiscal support is not warranted. Most governments have already dialed back pandemic support, as noted in our October Fiscal Monitor. With many people still struggling, governments should continue to prioritize helping the most vulnerable to cope with soaring food and energy bills and cover other costs—but governments should also avoid adding to aggregate demand that risks dialing up inflation. In many advanced and emerging economies, fiscal restraint can lower inflation while reducing debt. Central banks are raising interest rates to dampen demand and contain inflation, which in many countries is at its highest levels since the 1980s. Because rapid price gains are costly to society and detrimental to stable economic growth, monetary policy must act decisively. While monetary policy has the tools to subdue inflation, fiscal policy can put the economy on a sounder long-term footing through investment in infrastructure, health care, and education; fair distribution of incomes and opportunities through an equitable tax and transfer system; and provision of basic public services. The overall fiscal balance, however, affects the demand for goods and services, and inflationary pressures. A smaller deficit cools aggregate demand and inflation, so the central bank doesn’t need to raise rates as much. Moreover, with global financial conditions constraining budgets, and public debt ratios above pre-pandemic levels, reducing deficits also addresses debt vulnerabilities. Conversely, fiscal stimulus in the current high inflation environment would force central banks to slam on the brakes harder to curb inflation. Amid elevated public and private sector debt, this may raise risks for the financial system, as our Global Financial Stability Report described in October. Against that backdrop, policymakers have a responsibility to provide strong protections to those in need, while paring back elsewhere or raising additional revenues to reduce the overall deficit. Fiscal responsibility—or even consolidation where needed—demonstrates that policymakers are aligned against inflation. When fiscal adjustment is sustained, ideally through a medium-term fiscal framework that sketches the direction of policy over the next few years, it also addresses looming pressures on debt sustainability. These include aging populations in most advanced and several emerging economies, and the need to rebuild buffers that can be deployed in future crises or economic downturns. In our research, we use a stylized two country model (where the “home economy” may be the US or a group of advanced economies). We study two different approaches to curb inflation. The first relies exclusively on monetary tightening to cool the overheating economy, whereas the second involves fiscal consolidation. Both are constructed to have similar effects on economic growth, and each is effective in reducing inflation. Under the first, higher interest rates and the weaker growth contribute to rising public debt. Meanwhile, the currency appreciates as higher yields attract investors. Under the second approach, fiscal tightening cools demand without the need for interest rates to rise, so the real exchange rate depreciates. And with lower debt-service costs and smaller primary deficits, public debt declines. The real exchange-rate appreciation under tighter monetary policy implies that inflation falls a bit more, but this difference would diminish if more countries pursued these policies. Faced with high food and energy prices, governments can improve their fiscal position by moving from broad-based support to assisting the most vulnerable—ideally, through targeted cash transfers. Because supply shocks are long-lasting, attempts to limit price increases through price controls, subsidies, or tax cuts will be costly to the budget and ultimately not be effective. Price signals are critical to promote energy conservation and encourage private investment in renewables. The desirable fiscal stance and measures underpinning it will depend on country-specific circumstances, including current inflation rates and longer-term considerations such as debt levels and developmental needs. In most countries, higher inflation strengthens the case for fiscal restraint, calling for raising revenue or prioritizing spending that preserves social protection and growth-enhancing investments in human or physical capital. In the United States, the early-1980s disinflation under Federal Reserve Chairman Paul Volcker exemplified the challenges of controlling inflation. Inflation had become entrenched at high levels, and fiscal policy was expansionary. The Fed had to raise rates sharply to rein in inflation, causing a collapse in housing investment and historically large appreciation of the dollar. Manufacturing was hard hit, leading to calls for trade protectionism. That historical episode is relevant for many countries facing similar challenges today. A more balanced removal of policy stimulus, including fiscal restraint, can reduce the risk that some parts of the economy—especially those most sensitive to interest rates—experience disproportionate effects, or that large swings in the currency heighten trade tensions. This would also reduce risk globally. Less abrupt interest rate hikes would imply a more gradual tightening of financial conditions and mitigate financial stability risks. This would tend to limit adverse spillovers to emerging market economies and reduce the risk of sovereign debt distress. Avoiding a sharp appreciation of the US dollar or other major currencies would also lessen pressures on emerging markets that borrow in those currencies. While many central banks are tightening policy in response to the large and persistent rise in global inflation, the policy mix matters. Fiscal restraint will reduce the cost of bringing inflation back to target in a timely way, compared with the alternative of leaving monetary policy alone to act.
Economic decline causes nuclear war and global existential accidents.
Dr. Mathew Maavak 21, PhD in Risk Foresight from the Universiti Teknologi Malaysia, External Researcher (PLATBIDAFO) at the Kazimieras Simonavicius University, Expert and Regular Commentator on Risk-Related Geostrategic Issues at the Russian International Affairs Council, “Horizon 2030: Will Emerging Risks Unravel Our Global Systems?”, Salus Journal – The Australian Journal for Law Enforcement, Security and Intelligence Professionals, Volume 9, Number 1, p. 2-8
Various scholars and institutions regard global social instability as the greatest threat facing this decade. The catalyst has been postulated to be a Second Great Depression which, in turn, will have profound implications for global security and national integrity. This paper, written from a broad systems perspective, illustrates how emerging risks are getting more complex and intertwined; blurring boundaries between the economic, environmental, geopolitical, societal and technological taxonomy used by the World Economic Forum for its annual global risk forecasts. Tight couplings in our global systems have also enabled risks accrued in one area to snowball into a full-blown crisis elsewhere. The COVID-19 pandemic and its socioeconomic fallouts exemplify this systemic chain-reaction. Onceinexorable forces of globalization are rupturing as the current global system can no longer be sustained due to poor governance and runaway wealth fractionation. The coronavirus pandemic is also enabling Big Tech to expropriate the levers of governments and mass communications worldwide. This paper concludes by highlighting how this development poses a dilemma for security professionals. Key Words: Global Systems, Emergence, VUCA, COVID-9, Social Instability, Big Tech, Great Reset INTRODUCTION The new decade is witnessing rising volatility across global systems. Pick any random “system” today and chart out its trajectory: Are our education systems becoming more robust and affordable? What about food security? Are our healthcare systems improving? Are our pension systems sound? Wherever one looks, there are dark clouds gathering on a global horizon marked by volatility, uncertainty, complexity and ambiguity (VUCA). But what exactly is a global system? Our planet itself is an autonomous and selfsustaining mega-system, marked by periodic cycles and elemental vagaries. Human activities within however are not system isolates as our banking, utility, farming, healthcare and retail sectors etc. are increasingly entwined. Risks accrued in one system may cascade into an unforeseen crisis within and/or without (Choo, Smith & McCusker, 2007). Scholars call this phenomenon “emergence”; one where the behaviour of intersecting systems is determined by complex and largely invisible interactions at the substratum (Goldstein, 1999; Holland, 1998). The ongoing COVID-19 pandemic is a case in point. While experts remain divided over the source and morphology of the virus, the contagion has ramified into a global health crisis and supply chain nightmare. It is also tilting the geopolitical balance. China is the largest exporter of intermediate products, and had generated nearly 20% of global imports in 2015 alone (Cousin, 2020). The pharmaceutical sector is particularly vulnerable. Nearly “85% of medicines in the U.S. strategic national stockpile” sources components from China (Owens, 2020). An initial run on respiratory masks has now been eclipsed by rowdy queues at supermarkets and the bankruptcy of small businesses. The entire global population – save for major pockets such as Sweden, Belarus, Taiwan and Japan – have been subjected to cyclical lockdowns and quarantines. Never before in history have humans faced such a systemic, borderless calamity. COVID-19 represents a classic emergent crisis that necessitates real-time re

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