Why not do a rate hike?
By Daniel at 23 October, 2009, 12:16 pm
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The fact is, rate hikes have done very little for consumers and most small to medium sized businesses.
It helped banks and financial institutions do a roaring carry trade borrowing at near zero and then lending it out at sky high rates.
It helped AAA rated corporate borrowers like WMT and MSFT load up on cash.
But what did it do for the rest of the economy?
Money rates near ZERO have had little impact on the rates seen by most consumers and businesses.
They are still “borrowing”, or should I say, paying, at the “default” rates of 29.99%, plus fees and charges, or at best, at rates of teens on their credit cards or unsecured lines of credit.
Mortgages are marginally better, IF you can get the posted rate.
Businesses who cannot access the corporate bond market on their own and who are not AAA rated are getting high single digit, or double digit rates if it involves factoring or specialty lending (like to franchisees).
So, what that means is that the “spread” mostly goes to the financial institutions who can lend short at near zero, and recycle out the money for a whopping profit.
Great for “stimulating” earnings of bankers, financial institutions, etc.
Meanwhile, those living on fixed income securities like bonds, etc. pensions with fixed income assets, are getting taken to the cleaners.
Thanks a lot! Uncle Ben.
You are treating the typical American on the street who is not a financier or banker like Uncle Sam treated Indians.
What’s next? Will there be a Bureau of American Affairs?
- LBX
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