Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: elmatador who wrote (28702)	1/28/2008 8:48:19 PM
From: Elroy Jetson	Read Replies (2) \| Respond to of 219539

Lowering interest rates will not "stimulate the economy" because they can't do so under current conditions. Interest rates are being lowered for an entirely different reason. A.) If you are bankrupt, lower interest rates will not make me more likely to lend you money. That is a solvency crisis. Lowering interest rates, even to zero will not minimize this problem. B.) If real estate prices are falling, I would be very stupid to give you a 100% loan so you can buy additional real estate. I will insist that you come up with a substantial down-payment, even though last year you could obtain a 100% loan. This is a tightening of credit terms. Lowering interest rates, even to zero will not minimize this problem. Does lowering interest rates assist anyone? Yes of course, they assist banks by lowering their cost of funds, only a small portion of which gets passed onto consumers as savings, primarily consumers like myself who don't really need to borrow money. Banks are in serious trouble. Citibank had to pay 11% to borrow capital recently, which is a higher interest rate than the 9.99% I would pay on my Visa card if I were to ever not pay my bill in full each month - which will never happen. The Fed is requiring savers to help bail out the banking system. While this helps prevent a collapse, it will be negative for the economy in the short term. Savers will have less income to spend and the economy will weaken. Why do you suppose Bernanke, the Fed Chairman, suggested to Congress than they pass a $350 per person "tax rebate", ie free money which Bush promptly doubled. The government will borrow the "free money" from China, Japan or some place similar, or simply print the money. Bernanke knows that lower interest rates are powerless to act as a stimulus when faced with a solvency crisis and more restrictive credit terms. .