Although many hoped they would pause the Fed opted to lower rates by 0.25% today. This brings the Fed overnight rate down to 2.00%.

I believe these rate drops are really prolonging the pain. Mortgage rates have not dropped in kind with the Fed Rate. And as the banks actually seem to be properly assessing risk, mortgage rates have not come down all that much. So it doesn’t like the rate drops will slow the foreclosures.

The low rates are allowing the banks to fund at cheap levels, but that is a big part of what got us into this mess to begin with. The bail-out message is also being given to the big players. This could lead to another round of risky investments. Quick profits and large bonuses were partially part of the problem.

The low rates may make the car makers happy. They can offer 0% financing again and it won’t cost them much. However, it will take more than car sales to turn this thing around.

Lower rates just aren’t going to do it. We need to drive less, spend less, and save more. If we quit buying things we don’t need, with money we don’t have prices will come down. If we drive less, energy prices will come down. If we save more, we will have funds to cover the expected, unexpected (like new tires, new wash machine, etc.) and we won’t have to put those on a credit card.

The power is in our hands, we just need to flex our muscle on a nationwide scale. A nice rebate from the govt might give you a quick warm fuzzy, but the governments bail-outs will make us all worse off in the long-run.

Rate History

History of Federal Reserve rate changes

Will that is enough ranting from me. cd :O)

-- By Chris Duncan

Posted in Economy