Opinion: Is It Twilight in America?

How bad would things get if interest rates were to rise? This will eventually happen since rates can't go below zero. The only long-term solution to this problem is to increase the earnings and savings of Americans. To accomplish that, we need more investments both in our capital stock and in people through additional education and job training.

We have been avoiding the consequences of too much debt, too much spending, too little income and too much speculation for many years due to increasing leverage and appreciating assets such as homes and stocks.

Now that these and other financial assets have been falling for the past year because of deleveraging, we are only beginning to realize how weak and fragile our economy is without constant asset inflation. This is a very scary thought for most people to comprehend, and politicians don't want people to think about it. But the problem is not going away, and it is getting worse every day that we ignore it.

Americans and our government need to focus on real savings, the kind that involves earning more than we spend, borrowing less, and avoiding speculating on assets that do not generate any significant amount of income just because the asset price is inflating because of another bubble.

How can we start to fix this? First, the government needs to stop trying to stimulate private consumption, additional borrowing, and speculation on stocks, houses, commodities, and credit instruments. Instead, they should be trying to stimulate savings and long-term investments that can create more sustainable income such as new technologies, modernized manufacturing plants, infrastructure, education, job training, energy independence, and debt reduction. Part of moving in that direction involves normalizing interest rates up to a level that is at least above the rate of inflation as soon as possible.