Did this rate cut do anything to help the economy?

[Alex_angel]

One week later and it seems this rate cut did absolutely nothing to help ease the busting RE market. Rates have still gone up and more and more horror stories are surfacing.

The problem is that Ben can lower rates to 1% but the greedy banks will still raise mortgage rates. They just don’t want to deal with this mess.

[j]

yes, but inflation is going to start going crazy.

Look at the dollar, it is par with the Canadian Dollar for the first time in like 40 years.

Besides, what good is a Fed rate when banks need to pay 5.5% on CDs.

[patientlywaiting]

That’s why it’s a bailout for the banks. They get to make a bigger spread and recoup their losses. The risk premium is suddenly higher to pay for the past mistakes.

But since the bank won’t lower mortgage rates, it won’t do anything to help housing.

Remember, the Fed’s job it to ensure the health of the banking system. They are there to serve their member banks and by extension the economy. But the orderly operation of the financial system is their first priority.

I heard a Greenspan interview. And I agree with him. The Capitalist system is the best thing we’ve come up with since the Age of Enlightenment.

[kewp]

Indeed, no big banks have blown up, so thats good for the economy.

[(former)FormerSanDiegan]

It typically takes a few months, not a single week, for the effects of rate cuts to ripple through the economy.

[patientrenter]

Alex,

If you think the banks are greedy, that must mean you think current mortgage rates are exorbitant.

I have two comments:

1. Mortage rates are determined by supply and demand in the mortgage-backed bond markets. Banks just retail the results to individual borrowers, and sometimes compete with the mortgage-backed bond market by lending a much smaller amount of their own money. They must follow the bond markets, not the other way around.

2. If you think the rates on mortgage-backed bonds are exorbitant, then take 50% of your savings right now and buy mortgage-backed bonds. They’re available to the public, in lots of flavors, one for any taste. After you’ve done that, come back and describe in more detail how exorbitant the rates are.

I am being slightly flippant, of course, but… only slightly. If you think those ‘exorbitant’ rates aren’t high enough for you to plonk down a chunk of your hard-earned cash for them, then don’t expect others to throw away their hard-earned cash for even lower rates.

Patient renter in OC

[HLS]

Of course it will help the economy!!

Average workers will be able to afford unpaid days off now. It will allow people to vacation more. On cruises they can now afford an outside cabin instead of an inside.

Those that shop at the 99c ONLY stores will be able to afford to shop at Big Lots now.

Those that usually travel coach can afford to fly First Class now.

It’s such a boost to the economy that auto workers are willing to go on strike…

I figured it out and it makes TOTAL sense!!

If you have $10,000 in credit card debt, you are going to save $4 a month in interest.
For each $100K of HELOC that you have, people will save $41 a month. Isn’t that enough to stimulate the economy ??

Also, you cannot compare a short term rate with a 30 yr fixed rate.

[Coronita]

Say hello to $4000/month rents. Just kidding.

The irony if that happens. On one hand, some folks have been jumping on folks spending $3500+/month on mortgages. How sad would this be if inflation gets this bad that that's how much renting a SFH will be.

 

 

[LookoutBelow]

Exactly where do you think these people will come up with the 4G's per month you think it will take to rent a place ?

If they cant do it for ownership and having their credit on the line, then how the hell or why the hell would they do it for rent ? Theyve overbuilt to the max…they might "try" to jack the rents up to that, but it'll just sit empty…till the bank gets the property back, then THEY will rent it out for WHATEVER somebody will pay for it…bankers are greedy sluts that way, especially if it concerns their very survival

4,000 dollar rents for crackerbox SFH's ?…Never happen…I expect some big banks to go down here shortly (by summer 08)  no matter WHAT the fed does. they gave up their ability to contain this disaster 3 years ago….now its out of control and market cycles will take over…. the "Pain Train" is now rollling out of the station

[LookoutBelow]

Im not entirely certain that this coming recession will be a DE-flationary one or an IN-flationary one…All the indicators that I see dictate a possible DE-flationary recession….unless EVERYBODY in the world gets a 300% pay INCREASE !!!…

Now how the hell could that happen ?

[The-Shoveler]

Nor_LA-Temcu-SD-Guy

Let’s see, GM strike, Consumer Conf plunges to two year low, Major retailers warning, Sales of existing homes, depressed by turmoil in credit markets, fell for a sixth straight month in August, pushing activity to the lowest point in five years..
‘
U.S. Homes Post Steepest Price Drop in 16 Years

And the Markets Love it !!!!

Go figure ..

[Borat]

On one hand, some folks have been jumping on folks spending $3500+/month on mortgages.

Don’t forget that the vast majority of those people are also taking a huge tax write-off in the interest. Few of them (only work-from-home self-employed types) will be able to write off any of their rent. The rest will have to adjust their monthly housing cost downward by 800 or more to cover their now-higher tax bill as a renter…

[jeeman]

j,

I think inflation should not be too bad. The EU is concerned over their Euro being too strong and are now looking at lowering rates to weaken it. Their exports are starting to get hit as a result of the strong euro.

Most things even out in the end.

But I do hope that housing in SD gets a 30-40% shave.

Jeeman

[patientlywaiting]

I think that the coming recession will be deflationary, just like Japan’s lost decade has been.

No matter how low the dollar gets, China can always produce stuff cheap enough for us to buy. They will simply automate more.

How much was a Fast-Ethernet router in 2000? How much is it today? $50!!

We’ll have some inflation such as for food and energy. Energy inflation was self-induced (Iraq).

[cr]

I don’t think we will see a deflationary recession until inflation – the result of lower rates, a weakened dollar, and rising cost of goods – has played out.

The irony is the FED’s watch on “core” inflation doesn’t include food or energy. Still, goods from China will become more expensive with the dollar falling. This lead(Pb) issue is going to raise testing standards and as a result costs, plus the VAT and increases world demand for raw materials. China’s advantage is in labor costs – nothing else. As their economy grows so does their standard and cost of living = higher wages = higher prices.

I’ve asked the same question about this rate cut, and I see nothing but a NET negative. The government spent future money in the 80’s bailing out the S&L’s and what happened to them? Now we’re spending more money we don’t have bailing out who? A few banks that bought bad mortgages? At the expense of the consumers power to expend, and anyone who has money in a bank.

Why?

[Author]

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