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Old 09-21-2011, 01:30 PM
 
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What is everyone's opinion on this? Please forgive my ignorance on the subject, but I do feel like ranting because I'm still not over all those times when Greenspan kept manipulating interest rates to rock-bottom lows. Will I ever get to earn something on my savings again? These interest rates on savings, CDs and even money market accounts have been really dismal as it it.
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Old 09-21-2011, 01:33 PM
 
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Those interest rate reductions in 2002 encouraged many people who were unfit to have mortgages in the first place to get in over their heads buying homes, and now look at all the resulting foreclosures.
This time, they're saying that unemployment will recover at a really slooow pace, which would be the same result even if our current interest rates were to be left alone or even raised. Can't the Fed just leave well enough alone for a while?
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Old 09-21-2011, 04:57 PM
 
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The "people getting over their head" aspect of previous times had a WHOLE LOT MORE to do with a complete abandonment of sanity in UNDERWRITING standards and that was driven NOT by interest rates but by the lies of the ratings agencies, the pressure from Fannie & Freddie to lend to ever weaker borrowers, and ease of repackaging that was made possible by out of control invest bankers...

Cheap money, by itself, is nothing to be scared of. The broader question of lack of faith in the White House and other governmental leaders is a whole other issue -- both individual investors and the leaders of major firms have similar fears that there has been a worsening of the lack of cooperation between the political parties (and even inside the various factions of the party that "controls" the WH and Senate disagreeing on fundamental approaches to things like taxes...) that will lead not to a peaceful sort of "gridlock" like was seen when likable president like Reagan or Clinton had their disputes with the legislative branch, but a sort of "hell bent on destruction" end game that is driven by people with more deeply radical aims...

The Federal Reserve system is fundamentally about as conservative a system of banking as a nation can have. The idea that the majority of FRB governors are pushing to keep long term interest rates as low as possible ought to come as no surprise. Unfortunately the FRB could really benefit from a WH that was loudly proclaiming "people, this is like a 'clearance blow out' on money -- scoop up all you can, invest it in building your businesses, remodeling your homes, upgrading your cars and we'll all prosper together" instead the bonehead speech writers for the President are fixated on pumping up the vanishingly small group of goons that still think it makes sense to treat labor and management negotiations as some thing from the time that Pinkerton guards would clash with those that worked in slaughter houses where a clumsy worker might end up not just making potted ham but becoming part of such a canned treat. These losers need to see that in real jobs of today the only successful firms are those driven not by fear but a common purpose...
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Old 09-21-2011, 09:09 PM
 
Location: Conejo Valley, CA
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Quote:
Originally Posted by temazepam View Post
Will I ever get to earn something on my savings again? These interest rates on savings, CDs and even money market accounts have been really dismal as it it.
Sure....as soon as the economy picks up you'll earn more on your savings.

Low interest rates on CDs, etc has little to do with fed policy. The banks have more deposits than they'd like, they have no reason to pay higher rates which would attract even more money they don't need.
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Old 09-22-2011, 07:56 AM
 
Location: San Diego California
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Don't count on higher interest rates in the foreseeable future. If you want a blueprint of where we are going study where Japan was at this point in there multi decade recession.
The current economic situation is benefiting the banks and large corporations at the expense of the working people, and since the government and the Fed work for the banks and corporations, the status quo will continue.
As far as the economy picking up... don't hold your breath waiting for that either. There is no reason for the economy to pick up as the economic base of the country has been undermined by trade agreements designed to allow corporations to offshore production while still exploiting domestic consumption.
The current economic situation is one of continued devaluation of real estate and equities, higher unemployment, lower wages, and more inflation on day to day necessities. Not exactly a recipe for economic recovery.
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Old 09-22-2011, 02:38 PM
 
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The FED has everything to do with low interest rates on CDs. Why would banks need to compete for deposits with rock bottom short term interest rate window? Lets not even talk about the economic slack caused by fixed income having no purchasing power. Now, you can forget about long rates too since they are entering that market directly. Good for people with good credit who have debt and thats about it.
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Old 09-22-2011, 04:10 PM
 
Location: Conejo Valley, CA
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Quote:
Originally Posted by gwynedd1 View Post
Why would banks need to compete for deposits with rock bottom short term interest rate window?
Because the discount window requires collateral and is only a very short-term lending mechanism...

The discount rate doesn't control interest rates.....
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Old 09-22-2011, 04:49 PM
 
Location: San Diego California
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Originally Posted by user_id View Post
Because the discount window requires collateral and is only a very short-term lending mechanism...

The discount rate doesn't control interest rates.....
Why should banks put much effort into consumer loans when they can borrow at near 0% from the Fed and loan the money back to the Fed overnight at a profit with no risk?
So long as they do not need more reserve for longer-term loans, they do not need to pay competitive rates for savings.
The game is fixed. Remove the Fed welfare program for the banks, and interest rates will increase, as they will need to return to their former core business.
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Old 09-22-2011, 05:49 PM
 
Location: Conejo Valley, CA
12,470 posts, read 18,192,512 times
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Quote:
Originally Posted by jimhcom View Post
Why should banks put much effort into consumer loans when they can borrow at near 0% from the Fed and loan the money back to the Fed overnight at a profit with no risk?
Well....because they can't. Banks can borrow at the discount window, with collateral, at the rate of .75% or 1.25% depending on whether its primary or secondary credit. The Fed pays .25% on bank reserves.....

Also, the lending that occurs at the discount window is very modest, the fed has around 50~100 billion in loans at the discount window. That is for the entire banking sector.....where as even just FDIC insured deposits are ~$4.5 trillion.....

Quote:
Originally Posted by jimhcom View Post
So long as they do not need more reserve for longer-term loans, they do not need to pay competitive rates for savings.
Competitive rates? The market determines what rates are "competitive" and right now the banks are followed with deposits....

Lending has decreased, and bank deposits have gone up....and for some reason you guys think its some big government conspiracy that interest rates on CDs, etc are low.......it couldn't be supply and demand right? No way! That would make sense.....
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Old 09-22-2011, 08:50 PM
 
19,337 posts, read 16,935,945 times
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Quote:
Originally Posted by user_id View Post
Because the discount window requires collateral and is only a very short-term lending mechanism...

The discount rate doesn't control interest rates.....
Apparently there is a lot of disinformation out there. The FOMC also controls the federal funds rate.


What changes CD rates?
Short-term CD rates (one-year or less) respond quickly to changes in the federal funds rate. That's a target rate set by the Federal Reserve's Open Market Committee. The rate is a gauge used by banks when they lend to each other overnight.

I am not sure what needing collateral is supposed to mean either. Its as if you are quoting something from a book. A big reason why a bank needs to up its reserves is because it wants to make a loan. These very same loans are bank assets. You say it as if having to produce collateral is any impediment to sound banking institutions.

Last edited by gwynedd1; 09-22-2011 at 09:21 PM..
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