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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Elroy Jetson who wrote (13768)9/20/2003 6:13:04 PM
From: GraceZRead Replies (2) of 306849
 
The money is lent out to the housing bubble.

Would you prefer that money come from Fed creation or foreign investment instead of from increased national savings?

Sometimes money in banks is lent out for student loans. Sometimes it's loaned out for small businesses like my own to buy capital equipment. Sometimes it's loaned out to people to buy cars and sometimes it's loaned out to buy houses. Money put into banks by rich people is loaned out to people who aren't rich. What is mostly an electronic entry to them is a low cost mortgage to me. The money from the tax cuts stays in the economy and it increases the pool of national savings from which we make investments. Some of that money will seek a higher return funding start ups. Some of it will wind up in family foundations like the one that helped pay for my college education and the education of millions more after me. Most college endowments started with one wealthy person's contribution.

That money going into banks helps to lower interest rates which is worth a great deal more to the middle class then it is to the wealthy primarily because the middle class tends to borrow to make financial progress. I borrowed to go to college, I borrowed to buy my first house, I borrowed to buy my first big piece of capital equipment. All of those borrowings paid far more back into the economy than compound interest. Higher borrowing costs and inflation are always far higher burdens on the poor and middle class. The lower long term interest rates saves me almost $1000/month in interest expense and that's money that will be used for savings and new capital equipment I need for my business. Not everybody went out and blew their windfall on an inflated house. A great many of us will use it productively or to go back to school and re-tool.
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