For years, the government has encouraged low mortgage rates. Part of this was to promote the wholesome idea of home ownership. It’s good for everybody. Sort of. Sometimes. If you don’t go too far.
The Federal Reserve has used monetary policy to put money
into the system at low interest rates.
Of course interest rates are a big factor in calculating monthly
payments on mortgages, just as any other loan.
So low rates mean more people can qualify for more house. Housing is a big driver of our economy. When people buy houses, they buy stuff to put
in them. New furniture, window
treatments, appliances, decorating items.
The money just keeps circulating.
We know other agencies were involved in securitizing mortgages so there would be more money to lend. Again, an idea that seems to have some merit it you don’t overdo it.
We don’t need to go over the current results again. The news is full of it. What we do need to do is look at the extreme
interest rates being used to stimulate the economy and what this might
mean. Some Treasury instruments pay virtually
nothing. Money market funds are paying
just under 1%.
But like any accounting transaction, if it goes somewhere, it has to come from somewhere. One of the places is people who have done the right thing and saved their money over their lives so that they will be able to take care of themselves instead of being dependent on government or charity to take care of their old age.
One of the things they need to do is get a decent return on
their investments. Early in your
investment life, one answer would be to invest more in stocks. In the long run, you should make more. But when you get to the phase of the plan
where you are using the money, you need something that is paying out earnings
on a steady basis like bonds, certificates of deposit or money market
funds. So what do you do if your return
on these investments drops from four or 5 percent to one or two or even
less? You can only tighten your belt so
much.
And what can you do if the reason for this is that interest rates have been artificially suppressed by your government to stimulate spending and construction? Not much apparently.
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