Yet mortgage rates are going back up again. I guess their plan didn’t work. Although cynics among might say the rate cuts were to save the investment banks and hedge funds, not homeowners.
Meanwhile, a group of hospitals is screaming to the SEC to do something about the frozen auction rate security market. There are currently no buyers for this debt, and the hospitals need the money now. These securities were supposed to be the equivalent of cash, able to be sold instantly. But that was before the buyers disappeared.
There sure seem to be a number of financial calamities lately that were not ever supposed to happen.
The Department of Labor reported Tuesday that inflation ran at 7.4% from January 2007 to January 2008. A lender must charge at least that much on a mortgage just to keep up! To make a profit (and allow for future inflation) the rate must be higher, otherwise there’s no point in lending.
The clueless Bernanke Fed dropped rates to try to stimulate the economy, which didn’t work. In the 4th quarter, it “skidded to a near halt” despite the plunging dollar (AP). At the same time, it pumped skads of dollars into the credit market– an inflationary move if ever there was one.
Bernanke blames inflation on the commodities market. But inflation is by definition caused by printing more money– and that’s exactly what the Fed has been doing. Naturally, in the real world, interest rates are rising despite the Fed’s cuts.