| Editorial by Fred Taub,
Let's face it - economists on
national cable channels speak over the heads of most people, and most local
newscasters do not understand it themselves, so they can't explain it. Then
when you want a balance, all you can find is the one certain cable investment
show host who acts like he finished last in clown school. So, let's try and
look at it without all the economist mumbo-jumbo.
Wednesday, September 19, 2007, the Federal Reserve cut interests rated a half
percent. The question is, what effect will this have on consumers? For
starters, if you have a car or home loan, you can refinance it at a lower rate,
thus saving you money. If you don't have a loan, you will still save money
because service companies you use, such as utilities and even grocery stores,
will get an interest break and not have to borrow, thus they can pass the
savings on to consumers while trying to compete with other grocers for your
business. Utility companies, most of which do borrow money in one form or
another, will not have to ask for planned rate hikes, and in some cases have to
lower utility rates because they are regulated. As such, you will have more
money in your pocket, even if it a small amount of money.
Let's now say you spend some more money at your
grocery store because you have more, even ten dollars a month. If you multiply
those ten dollars by the number of customers who also spend an extra ten
dollars, you have a large increase in sales at the grocery store. The
supermarket, which also borrows money to stock their shelves, will then have a
large pile of money and can grow their store or remodel, for example, thus they
hire more people and the money goes back into the economy, multiplying itself
every time someone spends more money.
If you own a
house and are paying a mortgage, your interest rate will drop, saving you
perhaps fifty dollars a month or more, thus giving you tremendous buying power.
If you are one of the people who are facing foreclosure because of the failure
of the so-called sub-prime lenders, then you can refinance your home much
easier, thus saving your home.
September 22, 2007, just three days after the interest rate cut, Bank of
America started to advertise a new home loan program for refinancing existing
loans, and at a lower rate. This is something almost anyone can take advantage
of, but when to make that move is anyone's guess because some so-called experts
predict more interest rate cuts.
So, in essence,
interest rates affect everything we do, even if we do not have a loan or credit
cards. This is because the world runs on credit, so when people buy stuff from
those who have loans, regardless of what that stuff is, we save money because
they save money.
I hope this explanation without all
the economics mumbo-jumbo makes sense, and enjoy the expected economic boom,
even if it just means an extra burger and fries a week for you.