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Is there such a thing as good debt? What do you suppose bad debt is? And
what kind do you have? Debt Special Thanks to our Online Marketing Agency, SimpleImp for their invaluable contribution to this site's continued success. I strongly suggest that if you are serious about what you do online, these are the talented people you need to contact to see your effort payoff. |
Interest The markets cheer when the rates go down, unless of course they realize that lower short term interest rates are going to have little or no effect on your long term interest rates. The Federal Reserve Chairman, Alan Greenspan, makes the choice along with his board of Governors, to lower or raise these rates to stimulate business and provide liquidity (available money to borrow). Low interest rates, often at or near zero, get you in to your local dealership to buy a car.
But things are not as they appear. I was speaking with my father the other day. He is a retired oil worker whose concern over interest is entirely different than yours. Or is it? He is faced with a dilemma. The maturity of certificate of deposit has left him with no place to park his money for the short term. The interest rate on Money Market accounts while never great, have fallen to below the 1.5% mark on average. The safe haven for folks who invest has been relegated to the status of hiding the cash under your mattress. The return is getting to the point of similarity. One year CDs have fallen below their ten year moving average and well off their high of 5% for a six month note, and 5.5% for a twelve month.
Now this brings us to the problem of the relationship between the borrow and the lender. In the new definition of interest, the bank can slash your reward for saving, and in the case of my father, his income (dramatically), all the while keeping credit cards rates unchanged and mortgage rates steady at 7% plus. Personal secured loans have remained steady in the 8.5% range. For bankers it becomes a clear cut option, why lower prices when the customer keeps coming back. In other words, why not make money, lots of money. This is not far from price fixing. You wouldn't take it from a gas station if you knew their prices for wholesale gas had dropped and their pump price remained higher than what you thought you should be paying. Why are we allowing the banks to do what could be defined as the same thing?
Interest, the cost of money, will become the scourge of the recovery. Savers, mostly retirees and those who are frugal, are being punished for their diligence. Borrowers are being punished for their lack of creditworthiness, and this includes businesses who are attempting to recover ground. And for the markets, value is based on future earnings and that will be compromised for some time, and not just because their accounts have done a good job with their "other" books. Greenspan, who has done what he could, can only sit a wait for the waters to calm.
Our new definition for interest is this:
1.
a. A state of curiosity or concern about or attention to something: An interest in your future which if left to those controlling the rates would be considered a diminished interest.
2. Regard for one's own benefit or advantage; self-interest. Often used in the plural: It is in your best interest to worry yourself to sleep at night as the one thing you have been repeatedly told to do, save, has now deserted you in favor of helping business survive.
3.
a. A right, claim, or legal share: Shareholders have an interest in their portfolios and it is this interest that has caused many an investor to wonder where the next uptick will occur.
4. Involvement with or participation in something: She has an interest in the quality of her investments and because of that, she has become something of a victim. Pulled in a thousand different directions, she is losing interest even when she should be gaining.
5.
a. A charge for a loan, usually a percentage of the amount loaned. This is where the banks have decided that you will pay for their profits even though they could if they wanted to, lower the cost of doing business. This lack of participation, in their minds is in your best interest (see def.#2), because, if they did lower prices, then deflation would happen. Deflation is the expectation that prices will be lower, so consumers wait for the next lowest price. That has never been the case with lenders.
6. a. An interest group. The Blue Money Report
Thanks to Dictionary.com
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