Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
So we can't raise interest rates when things are going south and nobody wants to do when things are looking up.
When, then, should interest rates rise?
Ah, the difference between want and need...
The Federal Reserve Board needs to keep interest rates low so as to help the economy out of the current recession.
The Fed could raise interest rates, but that might lead into a depression.
When the economy gets better the Fed will most likely raise interest rates. It's one of the tools that the Fed has available to control inflation.
And cash is one of the worst places for seniors on a fixed income to park their retirement funds; diversification into other investments is a much better plan.
So we can't raise interest rates when things are going south and nobody wants to do when things are looking up.
When, then, should interest rates rise?
They should raise them when things are looking up. Thats my point, but politicians don't want to do that when things are going well. Raising them when things are bad only slows the economy even more, and that makes the economic downturn worse, which leads to deflation, which leads to another Great Depression.
They should raise them when things are looking up. Thats my point, but politicians don't want to do that when things are going well. Raising them when things are bad only slows the economy even more, and that makes the economic downturn worse, which leads to deflation, which leads to another Great Depression.
Not being rhetorical but is every depression the same? IMO the answer is an obvious "no." So the same mechanics don't apply in each situation.
Consider there is money out there that is not being saved or invested because of the abysmal returns. Lack of capital is the major issue that led to TARP.
All I am saying is that economics is less than a precise and rigid science.
And cash is one of the worst places for seniors on a fixed income to park their retirement funds; diversification into other investments is a much better plan.
\
Those who diversified into other investments lost half their nestegg last October. Unless they had that cockatoo picking their portfolio, instead of analysts. http://www.google.com/hostednews/afp...ptiAoPLJzK521A
Not being rhetorical but is every depression the same? IMO the answer is an obvious "no." So the same mechanics don't apply in each situation.
Consider there is money out there that is not being saved or invested because of the abysmal returns. Lack of capital is the major issue that led to TARP.
All I am saying is that economics is less than a precise and rigid science.
Most leading economists will tell you that during an economic "downturn" that it the time for countries to borrow money, to keep the economy going. Most economists, just like any other science, it is debatable.
I understand that its nor precise, but it makes sense to me that when things are going badly that you've got to borrow. When things turn around, thats when you pay it back.
Most leading economists will tell you that during an economic "downturn" that it the time for countries to borrow money, to keep the economy going. Most economists, just like any other science, it is debatable.
I understand that its nor precise, but it makes sense to me that when things are going badly that you've got to borrow. When things turn around, thats when you pay it back.
So who would one borrow from when the economy is bad, defaults are increasing and the rate of interest is not sufficient to draw out capital?
Thus the need to increase the interest rate, or otherwise the government can serve this private role. When the government takes this role, taxes go up. Even if taxes can somehow be stablized, the worst form of insideous taxation will occur....and that's called inflation.
During inflationary trends the interest rate needs to go up to compensate for lost purchasing power of capital previously acquired and held.
Hey, I'm not re-writing economist dogma but some of what is happening now is simply not the same as what happened in the past. This should be the focus rather than the "do it the same way we've always done it Sam" non-sense.
So who would one borrow from when the economy is bad, defaults are increasing and the rate of interest is not sufficient to draw out capital?
Thus the need to increase the interest rate, or otherwise the government can serve this private role. When the government takes this role, taxes go up. Even if taxes can somehow be stablized, the worst form of insideous taxation will occur....and that's called inflation.
During inflationary trends the interest rate needs to go up to compensate for lost purchasing power of capital previously acquired and held.
Hey, I'm not re-writing economist dogma but some of what is happening now is simply not the same as what happened in the past. This should be the focus rather than the "do it the same way we've always done it Sam" non-sense.
Getting a loan isn't hard, when you've got assets to back the loan.
Exactly on point. And we also reduce the interest rate to encourage them to spend on credit as well as force those who save to put money into stocks or real estate.
It's a vicious circle and it seems that the gains go only to those who refuse to be productive.
Here's another take. So you buy a house, more than you can rightfully afford, and the only way to get into it is to take the teaser rate with an ARM. Woa nelly, if you can't afford the house at an extra half of a percent then why should those who save be burdened by your activity?
And THIS is what most Americans STILL don't understand!
People were buying houses that they absolutely - in no way shape or form - could afford. Absolute no-brainer. But they bought them anyway.
Some people took interest-only mortgage loans. Others took loans where they didn't even pay all the interest, let alone any principle. Many took mortgages with a 3-year introductory teaser rate.
ALL of them took mortgage loans ASSUMING an annual appreciation expectation of 10-15%. But not only did houses not keep appreciating exponentially, their values began to decline. Suddenly, all these people were absolutely skarrewed.
From that point, it became a Domino effect. Every collapse led to another collapse.
I understand the need for the Fed to keep interest rates low now, to jumpstart our consumer economy again, but it was keeping the rates too low for too long that got USA into this mess in the first place.
Around mid-2002, Greenspan should have started raising rates because the market was beginning to move back up at that time indicating great optimism for the economy. Instead, the Fed funds rate remained at 1% until early in 2004. I remember at the time thinking that rates needed to go up. I feel the same way now, even if they only raise 0.25% or 0.50% before the end of the year. Our markets have moved up significantly since the March lows and optimism is beginning to return.
The Greater Fool Theory has been found sufficient to explain both the bubble in internet stocks and housing. People may have had an idea that they were taking out risky loans (interest-only, ARMs), but at the front of their thinking was this idea that someone else would come along and pay even more for that internet stock or house. When I went back to the USA in 2006 for a short vacation, all everyone was talking about was "flipping" houses. I had to ask what that meant, so dumb was I.
Omaha Rocks, it was a 25-year mortgage broker sitting across a foodstall table from me, beside the South China Sea, that tried to sell me on an ARM. I was thinking about financing 50% of a house purchase for 15 years. The initial 2-year payment would have been about the same as my rent at the time (RM900 vs. RM800), but it would have jumped to RM1,900 after two years! I asked the broker, "Why would I want my payment to more than double?" She couldn't answer. I think that Malaysian banks were doing ARMs because they heard and saw how American banks had jumped into those types of loans and were making boatloads of cash. They love to imitate success.
The Federal Reserve Board needs to keep interest rates low so as to help the economy out of the current recession.
The Fed could raise interest rates, but that might lead into a depression.
When the economy gets better the Fed will most likely raise interest rates. It's one of the tools that the Fed has available to control inflation.
And cash is one of the worst places for seniors on a fixed income to park their retirement funds; diversification into other investments is a much better plan.
What type of investments would you recommend to, say, an 83-year-old?
Low interest rates hurt seniors because to get a certain amount of monthly income, they have to put more money into a low-yielding CD than they would into a higher-yielding CD. To take a simple example, let's say our 83-year-old needs $100 per month income to supplement his pension and SS.
CD @ 1%, requires an investment of $120,000
CD @ 5%, requires an investment of $24,000
That is a big difference.
Most stocks are too risky for the short-term window of an 83-year-old, except for large-cap dividend payers (like MO, CVX, or PM). Bond mutual funds are a possible choice but the dividend yield would have to be in the 6-8% range to make it worthwhile, and he would have to consider loss in principal as a possibility.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
