Interest rates are at historic lows. And the Federal Reserve has pledged to keep them low for another two years. What does that do?
That encourages borrowing. That encourages living beyond your means. That discourages savings. I grew up being told to put my money in the bank. Right now, savings accounts pay 0.1% interest. There is no reward- there is no reason to put your money in the bank.
So what happens to a populace that has no savings? They become vulnerable. Then they can be manipulated. Then they can be enslaved (financially). There needs to be spending for our consumer-based economy to exist. But that should be balanced by savings.
I don't think the low interest rates have helped our recovery. I think we should consider raising them a little and see what that does. It would encourage me to put some more in the bank.
OK - let's say you raise 'em as high as you can. What does that do to the housing market?
ReplyDeleteWhat does that do to the people who are already making minimum payments on their loans/credit cards?
The credit card rates are not tied to prime. The companies just gouge as far as they can go. The only ones who borrow at prime are the banks.
ReplyDeleteYou may be right about it negatively affecting the housing market, but the market already sucks and keeps getting worse with these low interest rates. If one has no job. interest rates are of little consequence.
It's fine if you want to blow it all up, Jason. I would benefit, too. I'm just telling you why it won't happen: http://pragcap.com/refinance-activity-lagging-despite-record-low-interest-rates?utm_source=twitterfeed&utm_medium=twitter
ReplyDeleteGiving savers more incentive to save isn't going to help an economy that is 70% based on consumer spending.
How do you propose higher rates will improve the job market? Suddenly everyone who is already sitting on cash is going to feel better & spend money? Money they could invest at better rates?
I'm not saying I'm a grade-A economist, but... I am living in the real world.
Also: if you're serious about the credit card thing & you don't think the *majority* of card rates will rise when prime ticks up, I am happy to take the other side of that wager. We have plenty of time before that's going to happen, so... No hurry.
ReplyDeleteI wish we had a different economy than we have, too. But we are where we are. There is very little D.C. can or will do to fix things at this point. It will get worse before it gets better.
Did credit card rates fall when the fed lowered prime?
ReplyDeleteI recall raises in the state of panic. You're talking about inducing more panic, Jason.
ReplyDeleteRaising interest rates will push people to further de-lever, not to spend new money.
What do you really want? And is it 'progressive?'
If you think the credit card companies will lower rates or keep them the same, why do you think there is no political will to raise interest rates?
ReplyDeleteWhat do you think about the ECB's decision to raise rates? If you think it was the right thing to do, has it been effective?