Is the Fed Truly Making it Cheaper to Borrow Money?
Posted: October 29th, 2008 | Author: admin | Filed under: Uncategorized | Tags: credit, Federal Reserve Bank | 4 Comments »
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A great article by Miranda at Yielding Wealth was published today and makes a great deal of sense. The Federal Reserve is doing their best to make it easier to borrow money by lowering the Fed Funds Rate. While this is a good idea in principal, it might not turn out the way they would like in the current state of the economy.
Companies that issue credit have already been burned one too many times therefore they are going to be extremely selective. It is going to be much harder for individuals with a lower than average credit score to receive a loan due to recent history. It is also likely that the companies loaning money will start to reduce the amout of credit certain individuals already have. If this is the case, less money will be going into the economy and we already know where that can lead.
Another major issue is the fact that companies issuing credit are struggling for cash, therefore they will not be able to lend in the ways they once did. Ultimately, in the current state of the economy, those with money, preferably cash, will continue to benefit greatly. Do you agree with this assessment?
Read more about the Federal Reserve Bank at “End the Federal Reserve Bank”
The real issue is the artificial manipulation of interest rates by the Federal Reserve. Interest rates that are this low have the greatest effect in the economy by punishing savings. With the interest rate much lower than the rate of inflation, the money flows to somewhere else, even though this is not the best use of it, because the (mostly) efficient market is being manipulated artificially. This is what caused the last several bubbles. It is yet to be seen where the next bubble will be created, but there will be one, because it costs too much to simply hold money. Because the artificial depression of interest rates makes it unprofitable to hold money, it will be lent out, just with a higher rate to compensate for the risk of default. This is one reason why Americans are so indebted. There is no reward for saving, especially on a corporate level, where bad debt is simply written off.
Great comment! I would have to agree with your thoughts
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