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So what does the Fed cutting the interest rate really do... for us? [Archive] - DVD Talk Forum

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fujishig
05-01-08, 11:40 AM
I'm honestly curious. Besides inevitably decreasing the amount of interest I can get from my savings account? It's supposed to reduce the cost of borrowing, but I haven't really seen my credit card interest rates go down, and banks seem to still be holding tight to their money after all the shenanigans with the mortgage crisis. Even if credit card interest rates go down, and people extend their credit even more because of the rates, won't those same people be in even more trouble once rates snap back?

I guess by indirectly reducing the rate of savings, it does make me more apt to invest to try to get a higher rate of return.

Jacoby Ellsbury
05-01-08, 11:45 AM
Makes the dollar weaker against a barrel of oil thus raising gasoline and home heating prices and everything associated with gas prices including food. Its never a good thing when they lower the interest rate, although the media and wall street seem to portray it as a good thing.

X
05-01-08, 11:47 AM
It helps keep us in the houses we bought with adjustable rate loans. It also makes it cheaper for businesses to borrow money so they can afford to hire us.

The Bus
05-01-08, 11:52 AM
It also makes it cheaper for businesses to borrow money so they can afford to hire us.

Also, it makes it cheaper for businesses to borrow money to raise capital to bring in more business which would create more jobs.

Unless you're retired and/or 65, there's no reason to keep such a significant amount of money in savings that a drop of 0.25% in the savings rate has any effect on how much interest you earn. You're likely losing much more over the long term by not having that money properly invested as opposed to the sudden disappearance of $1.25 of interest you'd be earning each week.

raven56706
05-01-08, 11:58 AM
good thing bad thing... all the same...

Brian Shannon
05-01-08, 12:01 PM
It will not change credit cards since they are consumer discretionary credit. It lowers mortgage rates, home equity loan rates commercial loan rates. The effect is to make money cheaper.

Liquid money is always cheap(er) than other investments like bonds or stocks. if you want higher returns and can accept some risk look into investing into utility stocks.

grrrah
05-01-08, 12:04 PM
funny, after the last two rate cuts, mortgage rates increased.

dick_grayson
05-01-08, 12:06 PM
what doesn't it do?

CPA-ESQ.
05-01-08, 12:08 PM
It helps keep us in the houses we bought with adjustable rate loans. .


You Win!!

I am convinced that the FED wants to lower rates to dammn near where Greenspan had them (1%) in order stay off the inevitable.

They hope that all these people with adjustable rate mortgages will switch over to a fixed rate - or when rates reset - they will reset at the lower rates (which just keeps people in homes they can't afford until the next reset)

So what is the FED planning on doing - lowering rates ever 5 years for the next 50 years -ohbfrank-

4KRG
05-01-08, 12:10 PM
It allows all the people and lending institutions that made poor borrowing and lending decisions to not have to pay for their mistakes, instead, everyone that has wealth in US dollars has to pay :(

Those of us that are responsible and didn't buy more house than we can afford suffer.

X
05-01-08, 12:17 PM
funny, after the last two rate cuts, mortgage rates increased.Long term rates rose due to long term inflation fears.

The short term bond rates that adjustables are based on went down in general.

http://www.moneycafe.com/library/ratecharts/ratecharts13.gif

Ranger
05-01-08, 12:18 PM
funny, after the last two rate cuts, mortgage rates increased.
Yeah, because the 10-year bond went up to 3.7% from 3.5%.

Fed rate cuts create weaker dollar as an attempt to create growth. Weaker dollar causes inflation. It's a trade-off game.

dick_grayson
05-01-08, 12:21 PM
that's all we need is a weaker dollar. I'm waiting for the peso to become more valuable than the US dollar.

Brian Shannon
05-01-08, 01:24 PM
funny, after the last two rate cuts, mortgage rates increased.

And therein lies the problem for the Fed. The Fed con only control short term rates and try to nudge monetary policy in a certain direction. If lenders refuse to lower their rates to maintain their spreads (or even increase them) then there is nothing they can do.

Red Dog
05-01-08, 01:29 PM
Mortgage rates are barely moving, while savings rates plummet. Pretty much sucks for me since I've been looking to refinance my fixed rate. Once again, I pay for being responsible while the idiots benefit. So I guess I'm the real idiot for being responsible.

Tracer Bullet
05-01-08, 01:51 PM
Also, it makes it cheaper for businesses to borrow money to raise capital to bring in more business which would create more jobs.

Unless you're retired and/or 65, there's no reason to keep such a significant amount of money in savings that a drop of 0.25% in the savings rate has any effect on how much interest you earn. You're likely losing much more over the long term by not having that money properly invested as opposed to the sudden disappearance of $1.25 of interest you'd be earning each week.

I've always treated my savings account as an quick access emergency fund. Everybody doesn't do this?

grrrah
05-01-08, 01:57 PM
Long term rates rose due to long term inflation fears.

The short term bond rates that adjustables are based on went down in general.

http://www.moneycafe.com/library/ratecharts/ratecharts13.gif
as a non-expert person that was in the market to lock in a mortage rate, I just say what I experienced.

Long term, short term, yeah, you may be right, but just wanted to point out that some of the statements above were not entirely correct.

good and bad thing I never did lock in a rate, but I have until July. Probably won't matter though as the housing market is telling me to give up the deposit and wait a bit more.

fujishig
05-01-08, 01:57 PM
It will not change credit cards since they are consumer discretionary credit. It lowers mortgage rates, home equity loan rates commercial loan rates. The effect is to make money cheaper.

Liquid money is always cheap(er) than other investments like bonds or stocks. if you want higher returns and can accept some risk look into investing into utility stocks.

Aren't credit card rates based at least partly on key interest rates? In any case, the article in the LA Times said the following:

"Lowering the funds rate is intended to spur growth by reducing the cost of borrowing, including credit cards and business loans. Recent financial turmoil short-circuited the effect of previous cuts, pushing the Fed to cut further and find new ways to buoy the economy."

And I agree, I'm not making a killing with my savings account either way (which is for liquid, emergency reserves), it just seems like my rate has gone down a couple of percentage points even before this recent cut.

The Bus
05-01-08, 02:03 PM
It lowers mortgage rates

Yeah, because the 10-year bond went up to 3.7% from 3.5%.

Fed rate cuts create weaker dollar as an attempt to create growth. Weaker dollar causes inflation. It's a trade-off game.

Long term rates rose due to long term inflation fears.

Correct. An increase in rates increases inflation concerns, which more than wipe out any short-term benefits that cut would have. In the past few cuts, mortgage rates have always increased after the cut.

And mortgages are not in any way tied to the 10-year T-bill, although it's a close enough approximation since most people don't have access to the prices of Fannie Mae mortgage-backed securities.


I've always treated my savings account as an quick access emergency fund. Everybody doesn't do this?

My point is that if you have a savings account, it should be enough for quick access during emergencies, nothing more. It's nice to have $20,000 in there as opposed to $2,000, but there's no reason to have $50,000 in there instead unless your minimum monthly bills are $4000+.

So, if you only have $5000, what's 0.25% in interest? $13 a year. That's hardly a huge sum to complain about.

The Bus
05-01-08, 02:07 PM
as a non-expert person that was in the market to lock in a mortage rate, I just say what I experienced.

I think X was agreeing with you.

Brian Shannon
05-01-08, 02:08 PM
Aren't credit card rates based at least partly on key interest rates? In any case, the article in the LA Times said the following:

"Lowering the funds rate is intended to spur growth by reducing the cost of borrowing, including credit cards and business loans. Recent financial turmoil short-circuited the effect of previous cuts, pushing the Fed to cut further and find new ways to buoy the economy."

And I agree, I'm not making a killing with my savings account either way (which is for liquid, emergency reserves), it just seems like my rate has gone down a couple of percentage points even before this recent cut.

In theory yes, in reality no.

Did you know that you can have a credit card for your home equity line of credit? Stupid, yes I know but you can. For this card the rate would likely go down. For the average bank card like a Visa or Mastercard, no, lowering interest rates will not change what the banks charge. Revolving credit is hugely profitable and some thing of a sacred cow. Car loans or other types of personal credit may come down but there are other factors there such as lending ratios and collateral types and ages.

fujishig
05-01-08, 02:49 PM
Oops, sorry, didn't realize this was a political discussion.

The Bus
05-01-08, 03:19 PM
Oh, this is good. Can't wait to see how Obama and Islam tie into this.

imperator505
05-01-08, 03:35 PM
It allows all the people and lending institutions that made poor borrowing and lending decisions to not have to pay for their mistakes, instead, everyone that has wealth in US dollars has to pay :(

Those of us that are responsible and didn't buy more house than we can afford suffer.
And how anoying is this? The banks precipitate a crisis by irresponsible lending practices - and then rather than going to the wall, like they should, they proceed to make money from the pockets of responsible borrowers/savers. It makes me MAD!!!!

X
05-01-08, 04:13 PM
And how anoying is this? The banks precipitate a crisis by irresponsible lending practices - and then rather than going to the wall, like they should, they proceed to make money from the pockets of responsible borrowers/savers. It makes me MAD!!!!Does it also make you mad that the government forced banks to stop redlining, and in effect fostered reverse-redlining, which caused banks to make a lot of risky loans?

shifrbv
05-01-08, 04:26 PM
Also, it makes it cheaper for businesses to borrow money to raise capital to bring in more business which would create more jobs.

If this were true, unemployment would not be rising as it has for the past several months. Business is clearly not creating more jobs. Perhaps they are too indebted this time around. It's interesting that the fed considers hyper inflationary $4+ gasoline as well as other commodities more preferable than those with ARMs adn those who lent to them losing their a$$es like they should have. It seems like a bargain with the devil. But really it should come as no surprise. If it's a choice between average Americans or the banks/Wall Street, the fed will back up the banks/Wall Street everytime. Did anyone really believe this would end any differently?

al_bundy
05-01-08, 07:07 PM
these things don't work in a week, usually takes 6-9 months

go read the threads from early 2003, most of the liberals were saying the world is ending while the GDP was growing 8% as a result of the rate cuts

joeee
05-11-08, 05:56 AM
watch this dvd and see.... http://www.themoneymasters.com/

Dr Mabuse
05-11-08, 11:47 AM
it causes the loss of value in the dollar, the devaluing of the dollar internationally, which greatly worsens the commodity and the oil/gas situation... and greatly increases, and complicates, the looming inflation nightmare that is just over the horizon... that last bit there, the inflation part?... that's gonna be hell, and it's coming fast...

it took 17% to 19% interest rates to get us out of stagflation... everything else had been tried... now >4% is the answer?... laughable... mindless...

and there aren't enough people who see that clearly that go on the 'expert' talk shows to inform the public about it... so many, including here in this thread, parrot and echo what they heard Kudlow or Cramer or the like say on the television, or in a WSJ article, and think they have the 'inside' or accurate information...

it's nonsense... but effectively pushed out as propaganda by the same sort of ignorant, short sighted, self-serving greed that has created every large-scale financial crisis in the nation's history including the Great Depression, not including times of war of course...

those interests merely preyed upon the nation in times of war...


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