Friday, October 8, 2010

Braintenance: Disinterest Rates

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Situation Report @ 10.08.2010 - In the United States, interest rates throughout the economy (from the rate at which banks borrow from the Federal Reserve all the way down to the average home mortage rate). How low will they go? And for how long? Are they as low as the seemingly low rate of inflation? What does this all mean, Stimpy?

Braintenance: Di$interest Rate$

Dear Fellow Multicellular Organisms (and those Unicellulars who are thinking big):

This interest rate situation has me flummoxed. It begs several questions:

1. If interest rates are very low (but credit risks in the economy remain quite uncertain), what would be a bank's incentive to make loans to consumers and businesses?

2. If interest rates are very low (i.e., the neighborhood bank is offering an annual CD bearing a rate of interest lower than 1%), what would be a consumer's incentive to put any money into savings and bank instruments?

Would some citizen guru of economics please answer these questions for me? For some reason (call me "OCD"), I think that they are somehow important in the grand scheme of things, and for future planning and policymaking.

Also, I realize (but far too late) that I should have titled this article "Braintenance: Uninterest Rates." Does anyone appreciate the difference? [Hint: A disinterested party might possibly give me an answer, but an uninterested party would not.]

By the way, here's an example of a case (actually a very brief story) where an apparent bargain might not be a real bargain:

Let's say that a real estate broker comes knocking on your door and, gesticulating wildly and foaming slightly at the mouth, shouts, "Bobby! Bobby! (this is especially good if your name happens to be Bobby) There's a house in the best part of town that was sold to a guy ten years ago for a million bucks, and now it's for sale at a hundred thou! It's a steal!

Bobby nods his head and says, "Jeepers! That sounds great. If only I hadn't lost my job, lost my pension, run through my savings and had my house due to be sold at public auction tomorrow, I'd buy it. Oh heck. Darn my streak of bad luck."

That's about all there is to say about that. See you soon.


Douglas Castle

Douglas Castle
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