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Strategies & Market Trends : MDA - Market Direction Analysis

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Nov 12 4:00 PM EST

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To: Doug who wrote (67876)	1/29/2001 5:17:52 PM
From: Zeev Hed	Read Replies (1) of 99985

Reduction of interest rates is one of the fastest ways to increase demand. People remortgage their loans and get more money for smaller monthly payments. Corporations pay less interest (they are tied to Prime which moves with the feds) thus freeing money for additional capex, and even some credit cards are tied to the prime. If the annual debt service is let say $800 billions (anyone has the right figure?, namely not total debt, but consumer, plus mortgage plus direct bank credit lines), a reduction of 1% from 6.5% to 5.5% (18% reduction), sould result in about $100 Billions ( I am assuming debt service would go down less, by about 12.5%) in available money to stimulate demand, that is like a trillion bucks tax cut over the next ten years, and it is much faster than a tax cut. I did not even include the lower interest rate on margin accounts. Zeev

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