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So the article makes sense but can someone here please explain why Feds interest Rates for CD's (log term) are so abysmally low?????
In a lousy economy, why is the FED opting to discourage savings?...
Risk intolerance
Justin Krane, president of Krane Financial Solutions, a financial planning firm in Los Angeles, also has some suggestions for investors who are fed up with low long-term CD rates, yet can't tolerate any risk.
Track rate indicators. Short-term CD rates depend largely on how the Federal Reserve manages the benchmark federal funds rate, which is expected to be kept low though late 2014. On the other hand, long-term CD rates are more about inflation, including both the current pace and the future outlook or expectations. The bond market and 10-year Treasuries can be good indicators of inflation trends, Krane says.
Watch out for risk. Some investors abandon CDs and instead buy dividend-paying stocks, preferred stocks, preferred-stock funds, junk bond funds, emerging-market bond funds or floating-rate bond funds to chase higher yields. But Krane points out that those investments aren't apples-to-apples substitutes for CDs due to their higher risk profiles.
"If you're going to buy a CD, buy a CD," he says. "If you want exposure to the stock market, buy the stock market."
I'm not an economist, but the answer seems simple enough...
The Fed's rate is miniscule, and there's a surplus of cash, and not a lot of lending going on. So, little demand to attract cash, ergo, rates are barely above nothing.
So the article makes sense but can someone here please explain why Feds interest Rates for CD's (log term) are so abysmally low?????
In a lousy economy, why is the FED opting to discourage savings?...
Risk intolerance
Justin Krane, president of Krane Financial Solutions, a financial planning firm in Los Angeles, also has some suggestions for investors who are fed up with low long-term CD rates, yet can't tolerate any risk.
Track rate indicators. Short-term CD rates depend largely on how the Federal Reserve manages the benchmark federal funds rate, which is expected to be kept low though late 2014. On the other hand, long-term CD rates are more about inflation, including both the current pace and the future outlook or expectations. The bond market and 10-year Treasuries can be good indicators of inflation trends, Krane says.
Watch out for risk. Some investors abandon CDs and instead buy dividend-paying stocks, preferred stocks, preferred-stock funds, junk bond funds, emerging-market bond funds or floating-rate bond funds to chase higher yields. But Krane points out that those investments aren't apples-to-apples substitutes for CDs due to their higher risk profiles.
"If you're going to buy a CD, buy a CD," he says. "If you want exposure to the stock market, buy the stock market."
As a high school graduate, I can answer your question.
Right now lending rates of money to banks are low to encourage the banks to lend money. If lending rates are low, then the interest on CD and/or savings will also be low, because the primary method of making money at the FED, or a BANK, is to LOAN money and charge interest. They cannot PAY money out at a rate greater than they are making, and since interest is what is used to make money, primarily, and that moneyis used for day to day operations, pay, rent, supplies, etc etc etc, the interest rate PAID on a cd, would be taken on what is left after all the other bills are paid.
The FED didn't seem to have any problems printing out more billions for Hank Paulson's demands in 2008.
??? Relevance?
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Not buying the Microeconomics 101 model here of supply/demand.
There are no other actual economics models that are rational.
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In 1989 Reagan was president CD's were at 10%. It encouraged consumer savings and investment in banks.
Why not look up the Fed's rates back then? Also, we had good solid economic growth that wasn't fueled by massive real estate lending or government spending or any of those dead enders.
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Some Real Estate values weren't great but CD's were excellent. Thoughts??
1989-2005 the economy was great, in general. Obviously its a complex question.
But I agree, pknopp.
They want to devalue the dollar completely maybe? Push to the Euro?...just asking, I'm open to any ideas.
None of those.
When all you have is a hammer, everything looks like a nail.
The FED's former responsibility was to "stabilize the value of the dollar" - combined with being that cash source to prevent runs on banks, etc, from being destabilizing.
Somewhere, it became a tool of the Democrat party, and now it serves one function... to push money into the economy the only way it has. Long ago, it passed the "destabilizing" point. It just hasn't happened yet. It will, though.
The theory, in very simplistic terms, is that if the Fed keeps interest rates low those low rates encourage people to borrow and spend money and banks to lend more. It increases consumption, which is part of how we measure the economy’s growth. And it’s those big-ticket items – houses, cars – that really move the economy.
It’s terrible for older people who depend on interest on savings to live on. The Economist estimates that households globally have lost $630 Billion since the Fed started this aggressive stimulus to the economy by artificially keeping interest rates low.
They want to devalue the dollar completely maybe? Push to the Euro?...
Euro-area interest rates are at rock-bottom too.
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