1. Attention: We have put together a thread with tips and a tutorial video to help with using the new software. Please take a moment to check out the thread here: Trapshooters.com Tutorial & Help Video.
    Dismiss Notice

how low will interset rate go? Effect

Discussion in 'Uncategorized Threads' started by smsnyder, Jan 22, 2008.

Thread Status:
Not open for further replies.
  1. smsnyder

    smsnyder Well-Known Member

    Joined:
    Jan 29, 1998
    Messages:
    4,830
    how low will it go and what is effect? will government tax rebates help?
     
  2. Bocephas

    Bocephas Well-Known Member

    Joined:
    Jan 29, 1998
    Messages:
    1,019
    Smsnyder,too little too late.

    As for tax rebate it will just go to the oil people.
    People will use it to buy food and gas.

    The end result,we are spending money we do not have.
    You and I will end up paying more tax due to our income.

    Bo
     
  3. Capt. Morgan

    Capt. Morgan TS Member

    Joined:
    Aug 27, 2007
    Messages:
    1,061
    The interest rate that was lowered is the rate that banks charge one another for overnight loans. I've spent the better part of the afternoon reading the news reports from outside the US; it's more objective. Banks in the Persian Gulf fully expect the rate to drop as low as 2.5% this year but see the rate drop as the correct action at this time. They are trying to deal with their own inflationary conditions (up to %10) and may also drop their internal rates as well.

    Will tax rebates help? No. The rebates are aimed at trying improve consumer confidence in the domestic market. They're a "feel-good" band-aid. They will have no effect on what's going on in the international financial community as a result of the financial condition of the US mortgage market.

    Morgan
     
  4. Pocatello

    Pocatello Active Member

    Joined:
    Jan 29, 1998
    Messages:
    1,547
    If you mean the interest rates, the main effect I've noticed over the years when interest rates drop is that the dollar tanks in relation to other currencies. That supposedly should make exports increase, but it also makes imports more expensive, and since the US consumers keep buying imports at high levels, we get an increase in inflation, a decrease in savings, and the economy goes in the tank even further.
     
  5. admiral Art

    admiral Art TS Member

    Joined:
    Jan 29, 1998
    Messages:
    253
    I had more confidence in Greenspan
     
  6. balance365

    balance365 TS Member

    Joined:
    Jan 9, 2006
    Messages:
    70
    The Fed should be using interest rates to control inflation, not stimulate the ecomony. The effect of the Fed lowering interest rates to spur the economy will only increase inflation (see Pocatello's reply), leading to a much longer, much deeper recession than what we may be/are currently entering. Many of the indicators are similar to 2001, which was a shallow and short recession. Short term reactions by the Fed over the coming weeks/months will only create longer, deeper recession/depression in a few years.


    IMO there interest rate should remain steady, or even rise slightly to stave off inflationary pressures and help with the value of the dollar. That will be of much higher long term benefit than any of the quick fixes that are currently being considered. The poor lending practices and faltering mortgage companies are a small, but highly visible part of the economy that we are all sensitive to since many people used home equity as wealth, not true savings and investment. Poor decisions and overbuilding by builders is in the same bucket. Lowering interest rates will not fix those problems and lead to others that, again, cannot be fixed by short term reactions. While we may feel good next week with a 50 basis point drop, let's see how the economy is doing when inflation and the falling dollar lead us to $125+/barrel oil.
     
  7. Capt. Morgan

    Capt. Morgan TS Member

    Joined:
    Aug 27, 2007
    Messages:
    1,061
    " IMO there interest rate should remain steady, or even rise slightly to stave off inflationary pressures and help with the value of the dollar. That will be of much higher long term benefit than any of the quick fixes that are currently being considered."

    The interest rate that was lowered was not directly related to consumer spending. The intention of this rate drop is to make it easier for banks to move money around amongst themselves to that it can be made more readily available to borrowers. Raising the interest rate to the consumer is always a win-lose situation: any time it's cheaper for one person to borrow money, it's less attractive for another to loan it out.

    "While we may feel good next week with a 50 basis point drop, let's see how the economy is doing when inflation and the falling dollar lead us to $125+/barrel oil.'

    Oil is actually headed the other way; it dropped below $90 this week because the produced nations are worried that demand will drop as economic activity slows.

    Morgan
     
  8. balance365

    balance365 TS Member

    Joined:
    Jan 9, 2006
    Messages:
    70
    Lowering the rate will lower the value of the dollar, which effectively raises the cost of imported materials, including oil. Assuming OPEC does not make drastic changes to its output, oil prices will rise dramatically. As oil prices rise, the cost of other domestic products rise, due to manufacturing and transport costs going up. You get into a vicious cycle. For many old enough to remember, the actions of Bernanke are eerily similar to the Fed chairman G Warren Miller in the early 70s, where we ended up with double digit inflation that ended with a very deep recession in early 80's. It took the painful committment of Paul Volcker and the diligence of Greenspan to correct the economy and keep long term growth and stability (mainly stability) viable. Today was a major step backward in the policy making of the Fed and one that may lead to a long hard road, and it comes at a time when the retiring hordes of baby boomers are retiring (or planning to retire) that will place a tremendous strain on their savings, spending habits, and life style.
     
  9. pendennis

    pendennis Well-Known Member

    Joined:
    Jul 26, 2007
    Messages:
    1,567
    Location:
    Southeast Michigan - O/S Detroit
    Part of the problem the Fed now has, is that it has very little operating room. Once rates get below the 4% mark, it becomes prohibitive use 50-basis-point adjustments to help. As others have mentioned the lower rates will also cause the dollar to fall in value, causing higher risk in U.S.-based bonds and bills.

    The Government is approaching dangerous territory in their attempt to control natural movement in the business cycle. Historically, when consumer credit has been stretched thin, the consumer withdrew somewhat from the market, paid down debt, and allowed things to cool down, then warm back up. Consumers still want the $3k HDTV's, Lexuses, Caribbean cruises, etc., and commodity prices (oil, food, metals, etc.) are being forced upward as a result of worldwide demand. This is cost-push, and there is little that government intervention can do.

    The government has also erred in trying to make winners (ethanol, e.g.), which has resulted in higher corn prices; failed to allowed critical oil exploration in ANWR, and off the Gulf of Mexico coast; and kept low-cost Brazilian sugar-based ethanol out of the country because of tariffs.

    Government meddling has also contributed to the credit market mess. By insisting that lenders make high-risk mortgage loans, using ARM's, they insured that higher than normal failures, contributing to the emotionally driven financial markets.

    The above are just a microcosm of the problem. Get solvent, and ride it out. That's about all anyone can really do.

    Best,
    Dennis
     
  10. smsnyder

    smsnyder Well-Known Member

    Joined:
    Jan 29, 1998
    Messages:
    4,830
    excellent response. i really think the american economy is in deep do do. Health care insurance is through the roof. I even feel it myself. $15,000.00 per year for health insurance is crazy. What up sets me the most is i am a disabled vet and my health care is free but if i take myself off our paid insurance i can't get insurance for my wife. Any ideas on this? Credit today today stinks. 80% of the customers who walk through our dealership have credit scores under 500. Repos are through the roof. Fuel is high etc. What's next. I can see why the baby boomers are going to have a hard time retiring.
     
  11. halfmile

    halfmile Well-Known Member

    Joined:
    Jan 29, 1998
    Messages:
    15,642
    Location:
    Green Bay Wisconsin
    The Fed is not the government. It has nothing ot do with the Government. Control over our money was given to the bankers 80 years or more ago.

    The fox is taking care of the hen house, and the welfare of the hens is his last concern.

    Just don't get near the fox.

    HM
     
  12. chuckles

    chuckles Member

    Joined:
    Jan 29, 1998
    Messages:
    945
    Location:
    Michigan
    Pendennis, a lot of us are already solvent...don't you mean "Get liquid and ride it out"...?

    edit: the fed lowering the rate by .75 is virtully the "Kiss of Death" at this point...cheap and easy credit is what got us here to begin with and it (the rate drop) will certainly cause further lowering of the value of the US dollar, compounding an already sad tale of Global American cause and effect...

    In so many words we are fugged and we have done it to ourselves thru incompetance, indifference and ignorance...

    The only way out is for America to regain its manufacturing might (pray for a revolution in China/India) which would cause employment, as in jobs, and meaningful wages....

    otherwise steady on and continued Trap shooting and Texas Hold Em....

    regards
     
  13. grnberetcj

    grnberetcj Active Member

    Joined:
    Jan 29, 1998
    Messages:
    5,680
    All this fiscal stuff occurs every 10-15 yrs.......

    It'll recorrect itself......the smart money people ain't running for the hills.

    Remember:

    1 - Bulls make money

    2 - Bears make money

    3 - Pigs lose money!!

    Curt - Delaware
     
  14. School Teacher

    School Teacher Well-Known Member

    Joined:
    Jan 29, 1998
    Messages:
    2,052
    Location:
    Louisville, KY
    IMO, the Fed will lower interest rates again in ¼% increments until it hits the lowest point hit by Alan Greenspan. It will do this to stimulate the economy. I would expect at least two more reductions before the presidential election. Who knows, we may get another reduction next week. If it is a large one, it could appear that the Fed is hitting the panic button.


    For many individuals and families in this country, easy credit has become a way of life. If these consumers cannot get easy credit, they are unable to buy. If consumers do not buy, or cut back on their purchases, the economy will simply unwind.


    I am not an economist but I remember economics lectures that discussed the impact of housing in the economy. Every new house or apartment stimulates the purchase of building materials, appliances, furniture, mortgages, and other related items. These purchases stimulate the industries that produce them and their employees, in turn, buy goods and services such as automobiles, vacations, restaurant meals, haircuts and so on.


    Housing starts are greatly affected by family formation, job creation and interest rates.


    It looks to me that housing is in a downturn as we have a glut of unsold houses caused by the sub-prime mortgage debacle, loss of well paying manufacturing jobs and the cost of new construction. The transfer of medical costs from employers to workers, especially in small firms, does not help as families have less disposable income to purchase housing. Increased fuel costs are also a problem.


    The downturn in housing is helping to lead the economy into recession. Many consumers are tapped out on credit and will not be able to buy. Many consumers are so deep into debt that about the only growth industry is “Pay Day” loans what charge well over 100% interest.


    As a recent retiree, I sense that retirees are helping to hold the economy together with our pensions and investment income. I doubt if retirees 20 years into the future will be as fortunate due to the switch from defined benefit to defined contribution pension plans or the elimination of pension plans altogether.


    In sum, I believe that the Fed will lower short-term rates some more and the President & Congress will enact some type of stimulus package. However, I believe that a recession is inevitable.

    Hang on to your wallet if the Democrats take control of the presidency and the congress, raise taxes and enact massive spending programs. There just is not much stretch left in the string of our national economy.
     
  15. pendennis

    pendennis Well-Known Member

    Joined:
    Jul 26, 2007
    Messages:
    1,567
    Location:
    Southeast Michigan - O/S Detroit
    Chuckles, I really meant solvent. You need to have liquid, hard (home e.g.), and long-term assets (investments in stocks, etc.). Those assets have to be in excess of your liabilities, both short- and long-term. There's nothing wrong by having car and house payments. But, owing $20k on credit cards, making minimum payments; having less than 20% equity in your home; and still wanting that 70" HDTV, means you're in deep trouble.

    Liquidity is good, and it's all part of a person's total financial picture.

    Best,
    Dennis
     
  16. lumper

    lumper TS Member

    Joined:
    Feb 26, 2007
    Messages:
    3,586
    It's just a band-aid type fix to an open sucking chest wound type of problem.

    Not 4 hours after the very unexpected 3/4 point rate drop yesterday morning there were already financial analysts predicting/forecasting/expecting more to follow and that our economy/market will not turn around until more happen. This is nothing more than saying we need this or that and when you get it you say you need even more ...

    Personally I think the fed should just hold a very short lunch time news conference and tell the world very bluntly that ... we got what were gonna get and there aint gonna be nothin more coming so deal with it and thats that ... then turn around and walk away.

    It would cause a hell of a turmoil around the world but ... well ... we all would survive and we all would be stronger in the end but for right now its just a band-aid type fix to an open sucking chest wound type of problem.
     
  17. comp 1

    comp 1 Well-Known Member

    Joined:
    Dec 10, 2006
    Messages:
    2,160
    Have to agree with all here that lowering interest rates is the wrong direction to go. When fully 2/3rds of our economy is based on spending,encouraging MORE spending and debt is the road to hell. 100 years ago the american economy grew because of manufacturing and making lots of goods available at reasonable prices,then we started producing LESS goods and INCREASING prices, now we farm out our manufacturing to third world countries who make INFERIOR goods sold to us at what we think are good prices but that really only enhance the pocketbooks of c.e.o.s and speculators. Now the fed enters the picture and does everything it can to bail out their buddies;the banks who got GREEDY trying to loan money to less than qualified borrowers.It's almost impossible to save money when the individual's return is being destroyed by the action of the fed--How much you think the interest rate is now going to be on any safe investment like c.d.s? The gov't and the fed are working against you--they want you to blow every dime you've got.
     
  18. oletymer

    oletymer Member

    Joined:
    Jan 29, 1998
    Messages:
    818
    The worst problem for old retired guys like me is I don't earn as much on some of my investments. For me the higher the interest rates the better.
     
  19. halfmile

    halfmile Well-Known Member

    Joined:
    Jan 29, 1998
    Messages:
    15,642
    Location:
    Green Bay Wisconsin
    School teacher, that's not fair.

    You stated facts and logical conclusions. You never blamed Bush for one single thing.

    Now, about this glut of houses............greedy bankers? Sucking people in with the ARM's and not considering the effect down the road.

    I read the foreclosure notices in the paper every other morning(that's how they print them here) and can only shake my head. All you had to do was have a paycheck and you got the loan. Never mind what else you owed, etc.

    So now that the market has rebounded with a lively "Spoingggggg!" what will tomorrow bring?

    500+ points in one day wow.

    HM
     
  20. grunt

    grunt TS Supporters TS Supporters

    Joined:
    Jan 29, 1998
    Messages:
    5,921
    Location:
    Thousand Oaks Ca
    Lower rates help the borrowers, Also hurts the savers with lower savings interest. Were in for a long gravel road.
     
Thread Status:
Not open for further replies.