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Politics : Politics for Pros- moderated -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (160979)	3/17/2006 10:19:51 PM
From: DavesM	Read Replies (1) \| Respond to of 793712

re: "Mortgage interest rates are set by the free market, not the Fed or the Treasury." IMHO, my statement still is valid. I quoted the prime rate, which IMO is just as valid a measure of "interest rates set by the Free Market" as mortgage rates. If you want to use Mortgage rates, I'll use mortgage rates. In 2000, mortgage rates peaked at 8.38% (30 year fixed). Is this rate lower than 10%? Sure!. But in 1991, inflation was running at 4.2% (thanks to Reagan and Bush). In 2000-1, inflation was running 2.3% (thanks to Clinton). This means that the Real Rate of Interest on a mortgage in 1991 was 5.8%. The real rate of interest on a mortgage in 2000 was 6.1% (real interest is defined as nominal interest rate minus inflation). So the real rate of interest on mortgages in 1991 and 2000 were essentially the same, in response to each recession the Fed lowered interest rates resulting in roughly a 500 basis point reduction in 52 Week Treasuries. Yet consumer purchases were essentially flat in 1991 and increased 2.5% (real rate of increase) in 2001. What's the difference in Government action? The father didn't lower tax rates, and the son did. Is Real Interest Rate a valid measurement? Sure it is, it tells someone exactly how much they are paying for a loan over the rate of inflation. It is just as valid as Real GDP or Real Rate of Return.