Tea party vs. establishment -- we all watch this conflict, perhaps with a touch of amusement. However, there is a much worse division republicans will have to deal with, the differing objectives of cash and bond holders.
Money seems as if it would be an unmitigated blessing. Get enough of it and your problems are solved, eh? Actually, after struggling to accumulate your zillions, you have just changed one set of problems for another. What are you going to do with it?
Traditionally, cautious folks with too much money have sought to invest it, living off the returns of bonds and other safe, moderate-return instruments. With chronic low interest rates, this type of investment is not the cash cow it used to be, so bond buyers are always boosting for higher interest rates, which can often be the result of inflation.
Contrarily, facing chronic low bond yields, many highly moneyed investors have been opting instead for cash reserves, and various Caribbean islands are heavy with them. This segment of the investment class has very different objectives than the bond holders do. Low interest rates or even deflation would suit their purposes.
Since almost no one alive now has actually witnessed deflation, it might need a bit of highlighting. This shift in the buying power of money was a large part of the depression of the thirties, and it had several interesting characteristics. It can have a number of causes, but the most common one is the shrinkage of the money supply. When this occurs, the buying power of money increases each year, which is great for those who hold money or one of its equivalents. This same shift is ruinous for those who have debts since each year it is harder to raise the money for payments which carve bigger and bigger chunks out of their buying power. The worst thing about deflation is that it can become self sustaining once established and very difficult to reverse.
So here we have two well endowed economic blocks within the republican party with completely opposite objectives. The front line of their conflict is at the Fed which so far has supported the cash holders, keeping interest rates low and verging on deflation. But the bond buyers are a powerful group. The U. S. government is largely financed by selling bonds.
What should any progressive looking to get a leg up on conservatives do about this information? Awareness is a start. Most Americans have very little consciousnesss devoted to matters like economics, so understanding the situation is an important first step.
Maintaining and promoting dissention between these two groups of investors may be tempting. Conflict within the ranks of the enemy is usually a good thing, but here we need to be careful. A serious misstep at the inflation/deflation boundary can have national if not global repercussions.
As long as the differing objectives of such well moneyed conservatives remain at odds, we will hear a muffled uproar over interest rates and Fed policy from time to time. In these clandestine battles, progressives should consider making sure neither side wins.