Ben Bernake thinks he is saving the world or at the very least the US of A.
Why the Fed cut's will not help us.
I received another excited letter today from a realtor I worked with a few months ago. He say's "good news, the fed dropped the interest rates again....blah blah blah". How many people think that these rate cuts will drop the interest rates we pay? It's a lot, I over heard some one at work today that thought they would be getting a better rate on a Refi they are planning on making.
News Flash, the Fed rate cuts will NOT help the mortgage rates. If anything they will do the opposite. So why is the Fed dropping the rates? They are trying to save the banking system for seizing up. Our banks have taken huge losses due to the foreclosure crisis. Many of them are in real danger of failing. The Fed is throwing money at them in an effort to stop that from happening. And like it or not he doesn't have much choice. A bunch of banks going under would probably cause a complete meltdown of the US economy if not the worlds. Think 1929!
What are the banks doing with all the money the Fed is feeding them? They are hoarding it like a squirrel in the fall hoarding nuts. They want to have the reserves to cover future losses. They are taking it and buying Treasury bonds(Borrow at 2.25% get 4% interest, great, free money!). Lending that money to you or me is the last thing they are thinking of doing with it. And if they do lend some of it they are charging higher rates to offset the added risk associated with lending in an environment like we have today. Ask yourself, would you lend anyone money to buy a house around here? Now you see why the banks are charging higher rates. It's a risk thang!
In addition to getting screwed with higher interest rates on loans and credit cards this decline in the Fed Rate is destroying the value of the dollar and increasing the rate of inflation. Both of these are costing us real money. Wonder why gas is $4 a gallon? A large part of the reason is that the dollar is worth SQUAT. We buy things using dollars. We buy oil with dollars. When dollars aren't worth much the oil costs more. As does nearly everything else we buy overseas. Many foreign companies are asking to be paid in Yen or Euros rather than dollars. (my parents just got back from Barcelona where it cost $28 us dollars to buy 2 soda's and one sandwich at a small deli). Anyone else noticed the weekly grocery bill is looking more like a car payment? It seems every time I go to Stater Bros it costs me $160, Costco is nearly double that when we go there.
I'm no economist and I don't have any theories on how the Fed can fix this mess. I do know on thing though, you, me and the rest of the taxpayers are the ones that will end up paying for it.