New US Economy Policy Message Board

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Strategies & Market Trends : New US Economy Policy

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To: Arthur Tang who wrote (258)	2/15/2001 8:03:31 AM
From: Arthur Tang	Read Replies (1) of 435

Greenspan'a secret monetary policy revealed but flawed. Recent push in the news of remortgage down to 3.95%; sounded similar to the credit card introduction of 2.9% interest. The concept is sound that discretionary income savings can be diverted to other spendings. So the economy will rebound in some industries receiving the new spendings. Jobs will grow. The flaw was revealed by credit card banking. Low interest is only for the bankruptcy candidates, revolving from one card to another. Rich people pay up monthly and gets free service. Banks get 3% from merchants. High interest payment stopped reasonable people; they use cash instead of credit cards. So, credit card growth stalled and most banks lose money consistently. Some government regulation is necessary to help banks charge reasonable interest rate, so more people will use credit cards. Low mortgage rate for promotion is sound in marketing theory but the banks give away their banks to the new customers. It has to be related to overnight discount rate. 5% will get 6.5% 30 year mortgage. Any cute adjustment that Greenspan proposes to bankers are not sound and will create side effects damaging to the industry and later the economy. Greenspan should take the medicine and fix up the banks by restoring their losses due to high overnight discount rates. Temporary 4% should be sufficient for a short duration then back to 5%. God forbid, don't screw up the community banks who do not borrow from FEDS. They should get at least 6.5% for their loans from their surplus deposits.

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