Just can’t consider some of the issues facing the Fed:
By Daniel at 26 October, 2009, 3:23 pm
1) If rates rise, cost of debt servicing will explode from current levels, decreasing our discretionary spending, and give rise to even greater deficits.
2) Already the markets are apprehensive about upcoming mortgage resets through 2012, mortgage rates and alternate funding. The Fed is OUR sole mortgage investor. If reset pricing was forecast to be a problem, how much will higher rates exacerbate foreclosures?
3) If the Fed doesn’t raise rates, the dollar will continue slipping, giving rise to increased fuel prices, that will put a damper on our already fragile economy.
On the other side:
1) The Fed believed by lowering rates they could stimulate growth by spurring consumers to finance purchases (Americans traditionally borrow, not save!). BUT our problem isn’t the COST of funds but the AVAILABILITY. Banks are NOT able and willing. Rates are high, and criteria stiff, ie high FICO scores, stable income, low debt to income ratio, and requirement for a decent down payment.
2) By suppressing rates so BIG bank cost of funds is almost zero these financials are making money via trades, not lending. This is NOT the answer to our problem - but a repeat of what led to this crisis.
Increasingly, it looks like we are going up that stream without a paddle!!
- Gorm
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