Wednesday, September 19, 2007

Can someone explain to me the US financial strategy? We hear all of the time that Americans don't save enough money and are too far in debt. So why then does the Federal Reserve Board drop the prime interest rate another half-percent? This is like telling an obese person they can have twice as much soda because its "diet".

The Fed cites concerns over increasing numbers of foreclosures and how those fears are dragging down the stock market and are how they are threatening the entire borrowing industry. Do we honestly think that Citigroup or Capital One are going under anytime soon?

Whatever happened to the free market deciding financial success? If a company makes a bunch of bad loans to unqualified borrowers whose fault is that? Certainly not those of us who waited until we had some cash and the proper income to buy a house.

If anything, the current situation exposes the house of cards that has been the US economy the last decade. Too many companies are dependent upon Americans spending beyond their means. That may actually be a credit to the folks in marketing--who have persuaded consumers that cell phones that play music and games and access the internet are somehow necessities. The same for the third vehicle, the boat, the plasma tv and so on.

The irony is that the interest reduction will not benefit most of those currently in debt. Credit card companies are notoriously slow in passing along interest rate cuts--if they do it at all. The same for adjustable rate mortgages.

Meanwhile, those of us who are trying to save will take an almost immediate cut in interest income. That should create of rush of people heading to the bank to make deposits.

So c'mon Fed--let's starting exerting some tough love on the economy. Force Americans to settle some of their current debts rather than encourage more unneccessary spending.

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