Caught in the economic crossfire

When Alan Greenspan speaks, the echos roll all the way across the Pacific and hit the commonwealth’s economic shores.

Alan Greenspan, as anyone who doesn’t live on Mars will know, is the chairman of the U.S. Federal Reserve Bank. The “Fed” has been cranking up interest rates on a more or less regular basis lately. This week brought another upped interest rate ante, to the tune of half a percentage point.

The big idea is that increasing interest rates will reduce the amount of money borrowed, which will reduce the amount of money created in the economy (in the U.S., money is basically created by banks making loans). So higher interest rates means less loans, which means less money out there, which means less inflation out there.

Which is a relationship that only pointy headed economists would care about, yet Alan Greenspan has become a household name (ranking up there with Posh Spice in name recognition).
A lot of people who don’t normally follow the Dismal Science are aware that Mr. Greenspan is the hand behind the rising interest costs they’re facing. Americans are notoriously debt laden consumers, and credit card rates as well as mortgage rates will be climbing yet again.

People in the mainland aren’t the only ones who are going to feel the pinch, though. Here in the Commonwealth, rising interest rates are a losing proposition in a number of ways. We’re accidental victims of the Feds war against U.S. inflation, caught in the economic crossfire. While they’re worried about an “overheating” economy over there, we’re facing an economic meltdown over here. Inflation is the least of our worries.

Our already struggling consumer sector will have to deal with higher costs for borrowing money. Our business sector, likewise, will find it harder to scrape up investment funds.
And, our ever hungry government sector will face higher costs if it seeks to borrow money for various projects.

Ouch. That’s three strikes right there…but, as the commercial says, “wait, there’s more!”
U.S. interest rates also effect Japanese consumers who visit our fair shores. We would expect higher U.S. rates to increase the value of the dollar against other currencies, the yen included. So far, the dollar to yen rate hasn’t behaved like this, but we’ll have to wait and nervously see what happens.

The CNMI’s lucky stars aren’t exactly in alignment any longer. Interest rates continue to climb. Oil prices do, too, which has a clear impact on our airline sector. When we combine these factors with Japan’s continued doldrums, we have to conclude that the outside world isn’t as economically accommodating to us as it used to be.

The CNMI doesn’t seem to grasp this bigger picture, though, and business as usual is just going to mean we’re digging a deeper economic hole for ourselves. We can’t blame Mr. Greenspan for that fact.