Tuesday, May 03, 2005

Investing Money and Interest Rates Rollercoasters


As per usual, the NYT reporters and government officials they wine and dine with can't put things together, the Rubik's cube of Reality just causes them both to hit a brick wall.

Despite growing evidence of an economic slowdown, the Federal Reserve is not about to ride to the rescue by keeping rates steady.

A big reason is that in a trend that has confounded the Fed, cheap money is almost as plentiful now as when it started raising rates last June.

Well, duh. Only some really braindead person will put money in savings account (editor's note: this is being sarcastic. I am saving money in such an account as others are--read on--risk factors are very important!!). The paltry rate the banks and the Fed feed us is worse than ridiculous. Instead of using the Fed's power to encourage savings they used it for several years now to encourage buying and investing in assets that you bid on. So now they inch it up a tad, too little, too late. No one is going to put their nest egg into savings. They are going to buy property or collectibles or gold or some such thing that will be "valuable". Bank accounts are, at best, a dry affair. When the rate of return is pathetic, they are as attractive as investing in a slum property during a police riot.

People are buying mortgages or getting mortgages. This should be writ in huge letters so Greenspan can read it without his glasses on. This is where the "action" is and it will stay there so long as the Fed is giving away money. The Fed rate is really low. Mortgages are higher. They are lower than some other periods in time but they are very much more competitive than bank savings when you look at the return you get...IF the market doesn't collapse.

For loans on property are not solid at all. When buyers take a dive so does the entity holding the mortgage. If many fall through at once this causes an economic melt down usually expressed with the term "depression". Meaning, you can't sell anything worth anything to anyone. All the money "disappears" as the value of the properties drop like a rock.

Money, being a social contract, doesn't really exist as something solid. I have on this page a silver dollar bill printed right before the Great Depression bank collapses. You should be able to get silver with it but you couldn't, not at a bank, they closed! Bang.

I also have a gold certificate which was turned into paper with the magic wand of the Fed. Bingo. No gold. Now it is a museum piece and finally worth something again.

Mr. Greenspan has gotten this utterly silly idea in his dumb head that he is supposed to control prices. Not any prices, just some of them like computer prices or TV sets or whatever. Not property prices or heaven forfend, stock certificate values! Since he is an eagle scout seeking price controls over a limited number of items, this vigilance is causing all other prices to go utterly haywire.

I don't know how to get him and his fellow political conspiritors back into line. I think the Fed should always be headed by someone of the opposite party so we don't get this sort of insane mission creep, trying to keep things going so a party can stay in power even if it means toasting the entire economy.

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