Why Cutting Interest Rates Makes the Economy Sicker — Not Stronger

The Lie We’re All Told: Lower Rates Mean More Jobs

The mainstream story goes like this:

If unemployment rises, the Federal Reserve should slash interest rates. Cheaper borrowing means more spending, more investment, and more jobs. Simple, right?

After the 2008 financial crisis, the Fed cut interest rates to near zero and held them there for seven years—yet U.S. unemployment still peaked at 10% in October 2009, according to the Bureau of Labor Statistics, and millions of workers never returned to full-time employment. Despite this record-low rate environment, the promise that lower rates create more jobs failed to materialize for large segments of the labor force.

Wrong.

This idea comes straight out of Keynesian economics—the belief that central planners can fine‑tune the economy like a machine. But the real economy isn’t a machine. It’s a complex web of human decisions, trade‑offs, and time preferences. And when you tamper with the price of money, you break the entire signal system.

Interest Rates Are Prices, Not Policy Tools

Interest rates aren’t just numbers set by bureaucrats in Washington. They’re prices—specifically, the price of time.

They reflect how much people prefer present consumption versus future consumption:

• High rates mean people want to save more.
• Low rates mean people are willing to spend now.

In a free market, interest rates emerge naturally from millions of individual choices. But when the Fed forces rates down, it lies to the economy. It tells businesses there’s more savings available than actually exists.

That lie sets everything else in motion.

How Artificially Low Rates Distort Economic Signals

When rates are artificially low, borrowing explodes. Businesses rush to expand. Factories get built. Startups get funded. Wages in certain sectors rise.

On the surface, it looks like prosperity.

But here’s the problem: the real resources aren’t there. People didn’t suddenly save more. The capital wasn’t earned—it was fabricated through credit expansion.

Austrian economists call this malinvestment:
Capital and labor get poured into projects that only look profitable because money is artificially cheap.

These projects aren’t aligned with real consumer demand. They’re built on distortion.

The Labor Market Illusion: Why Jobs Look Good (Until They Don’t)

This is where the jobs numbers fool people.

During a credit boom:

• Businesses hire aggressively.
• Wages rise in capital‑intensive sectors.
• Politicians declare victory.

But look closer and you’ll see:

• Full‑time jobs declining.
• Part‑time and gig work rising.
• Jobs with no benefits replacing real careers.

These are temporary jobs tied to artificial conditions. When the stimulus fades—or inflation forces rates back up—those jobs disappear.

The bust isn’t a mystery. It’s the inevitable hangover from cheap credit.

Why Cutting Rates After a Bust Makes Things Worse

When the boom collapses, the same people who caused it demand more rate cuts.

This is like trying to cure alcoholism with more alcohol.

Lowering rates again:

• Prevents bad investments from being liquidated.
• Keeps zombie companies alive.
• Delays real recovery.
• Sets the stage for an even bigger crash.

The Austrian view is clear: recessions are the correction. They’re the economy clearing out the mistakes caused by earlier manipulation.

Interfering with that process only prolongs the damage.

Inflation: The Silent Pay Cut

Supporters of easy money claim inflation helps workers because wages go up.

That’s a half‑truth at best.

Yes, nominal wages rise—but prices rise faster. What matters isn’t how many dollars you earn, but what those dollars can buy.

Inflation:

• Transfers wealth from savers to debtors.
• Erodes purchasing power.
• Forces workers to demand higher wages just to stand still.

As Ludwig von Mises warned, inflation can only “work” as long as people believe it will stop. Once that faith breaks, the currency follows.

Why Higher Rates Actually Help Recovery

This is the part that sounds counterintuitive—but it’s crucial.

Higher, market‑driven interest rates:

• Encourage real saving.
• Attract genuine capital.
• Kill off unproductive investments.
• Restore honest price signals.

Painful? Yes.
Necessary? Absolutely.

You don’t rebuild a rotten foundation by painting over the cracks. You tear out the bad structure and start again.

The Role of Government and Labor Restrictions

Monetary manipulation isn’t the only problem.

Wage controls, union mandates, licensing schemes, and minimum wage laws all prevent the labor market from clearing. When wages are forced above market levels, employers hire fewer workers. The result is structural unemployment and underemployment.

Combine that with cheap money, and you get the worst of both worlds:

• Distorted investment.
• Rigid labor markets.
• Stagnant real wages.

The Bigger Picture: Control, Not Prosperity

Here’s the uncomfortable truth:
Easy money isn’t about helping workers. It’s about maintaining control.

It keeps asset prices inflated, while financing endless government deficits, and conditioning the public to accept central planning.

And now, with systems like FedNow and incoming digital currencies, monetary control is becoming programmable. The same people who broke the economy want direct oversight of how—and when—you can spend.

Gold, silver, and sound money threaten that control. That’s why they’re sidelined. That’s why Austrian economics is ignored.

The Only Way Forward: Sound Money and Reality

There is no painless fix. There never was.

Real recovery requires:

• Letting interest rates reflect reality.
• Ending monetary experiments.
• Cutting government spending.
• Removing barriers to work.
• Restoring sound money principles.

The fantasy that central banks can print prosperity has been disproven over and over again. Every cycle ends the same way—more debt, more inflation, more instability.

As Mises warned, trying to inflate your way out of scarcity doesn’t end in full employment. It ends in collapse.

Final Warning: Prepare Yourself Now

The system isn’t being repaired. It’s being replaced.

If you understand what’s happening—if you see the warning signs—you need to act like someone who knows the storm is coming.

That means educating yourself on the monetary reset already underway.

Download the Digital Dollar Reset Guide by Bill Brocius

Required reading for anyone who refuses to be trapped by programmable money and centralized financial control

This isn’t theory.
This is survival intelligence.