No Percent Interest?
The last two cars I bought were no interest deals. But is the entire economy of North America moving to a place where there is no profit and no consequences from borrowing money?
The Federal Reserve cut a key interest rate by a quarter-point Wednesday, a smaller move than the aggressive easing it undertook earlier this year. There were signs the Fed may believe it has done enough to prevent a deep recession.Given that real property in some markets and production costs in others are going through a retraction of value (which means it's worth less than was assumed), in some cases is a zero return pretty good? But in an economy soaked with debt and staggering under its weight - is the creation of easier access to debt such a good thing?The Fed action, after a two-day meeting, pushed the federal funds rate down to 2 per cent, the lowest level since late 2004. It marked the seventh rate cut by the central bank since it began easing credit conditions last September to combat the growing threat of a recession brought on by a severe housing slump and credit crisis.
Well, at least we're not Japan. Good thing we haven't got much to do with them economically.
Replies to Alan McLeod’s post: No Percent Interest?
David Janes [8:47 AM May 1, 2008]
Several observations:
- unlike as promised and forecast, the US economy _didn't_ retract last quarter, to the disappointment of many
- however, this may partially be back of super low interest rates
- this is an incredibly dangerous game, as Japan found out in the 90s: there's very little difference between 0% at 2% (the difference between 8% and 10% is much larger, because of compounding, e.g.) so what's happening is that the Fed is losing control over the economy!
- this happened in Japan in the 1990s, at points I believe they had to go to into negative interest rates (I don't have a ref for this)
- because low interest rates undermine the dollar, foreign goods (and energy!) becomes more expensive creating inflation and further undermining the economy
- it rocks to be a Newf, even if we're expats these days
- it's good to be a Canadian (not quite as good as being a Newf, but not bad) but note what it takes to get from doom and gloom to ... whatever it is now: one solid decade of fiscal discipline and government contraction. Who is the man or woman to do this? Alas, no one.
- unlike as promised and forecast, the US economy _didn't_ retract last quarter, to the disappointment of many
- however, this may partially be back of super low interest rates
- this is an incredibly dangerous game, as Japan found out in the 90s: there's very little difference between 0% at 2% (the difference between 8% and 10% is much larger, because of compounding, e.g.) so what's happening is that the Fed is losing control over the economy!
- this happened in Japan in the 1990s, at points I believe they had to go to into negative interest rates (I don't have a ref for this)
- because low interest rates undermine the dollar, foreign goods (and energy!) becomes more expensive creating inflation and further undermining the economy
- it rocks to be a Newf, even if we're expats these days
- it's good to be a Canadian (not quite as good as being a Newf, but not bad) but note what it takes to get from doom and gloom to ... whatever it is now: one solid decade of fiscal discipline and government contraction. Who is the man or woman to do this? Alas, no one.
Alan [8:58 AM May 1, 2008]
Excellent points. I would like the partisans Tories in Ottawa to stand up and say we are strong and maybe strong enough to weather this because of non-partisan commitment to prudence.
And I was unaware when it was not a time that being a Newf rocked.
David Janes [10:36 AM May 1, 2008]
One major advantage the Americans have over the Japanese is a replacement birthrate, plus they're open to immigration in a way the Japanese are not -- i.e. they have workers to care and pay for retirees.
