Now that the Fed has given virtually all of its margin on the fed funds rate, what happens next? When things continue to get worse, where will the government go to try to stimulate the economy again? I keep hearing people say there are more “tools in the bag,” but other than printing money and giving it away freely, I don’t know what they possibly could have left.
While my wife and I will enjoy seeing our equity line rate drop some more (just in time for our necessary bathroom remodel no less), I’m left wondering how the country will ever pay for these steps when the economy starts to turn around. What burden will my children face when the bailout bills come due, the interest rates start to return to sane levels, and budget deficit balloon pops? What tax increases and desperate times are ahead to pay for these failed doomed policies now?
I’m not against a drop in the rate persay, but who is it really going to help? Citi and other credit card companies are raising everyone’s rates to prop up their own balance sheets, so its not like average consumers will get much benefit from a drop in the Prime Rate. At best the bandaid helps stop the bleeding a bit for the nation’s banks… but if $700 Billion here and $300 Billion there don’t help them turn their businesses around and record foreclosures don’t help them learn from their mistakes… than certainly this bandaid will not cure all their ills.
And while the banks get a boost yet again, the interest rate you are paid for savings will continue to drop…. leaving you less able to save, earn and grow wealth… which means you will be less prepared when the chickens finally do come home to roost.
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