Preface: Reading some of the economic news recently I had some questions. Maybe these questions are above my pay-grade. Maybe. But:
A. I have a blog and that levels the playing field some;
B. We're in America, so it's...ok, our duty to ask questions above our pay-grades. That duty when exercised has helped level the playing field for 2+ centuries;
C. I don't think I'm alone in asking these questions.
Here are excerpts of economic news I read that helped generate these questions:
Excluding food and fuel costs, which tend to be volatile, prices fell 0.1 percent — the first decrease since 1982.Thursday’s report on jobless filings, in fact, rekindled worries that the labor market would be slow to bounce back. First-time unemployment claims last week were much higher than expected — 473,000, up 31,000 from the previous week.
The results beat Wall Street forecasts, and shortly after their release, stocks pared some of their losses in after-hours trading. - NY Times
The Federal Reserve raised the discount rate it charges banks for emergency loans by a quarter-point Thursday, the first increase in nearly four years and further evidence that the financial crisis is history. - USAToday
Help me understand some things.
1. Why is Wall Street responding favorably to:
- Consumers having no money to spend except on survival
- Jobless numbers being higher than expected.
2. Why did the Fed decide to raise the interest rate it charges to banks?
- What evidence, pray-tell, shows this financial crisis is history?
- Was it the lack of consumer spending?
- Was that a move to spur lending to small business? $30 billion was offered to help spur small business loans. That’s the category of loans banks seem most reluctant to issue. (consumer loans, car loans...even home loans...corporate loans...all seem golden.) That’s the category of our economy that is not able to finance its growth. By coincidence that’s the category of our economy that creates the jobs that drive our economy or in their absence...stall the economy.
I’m sure there are smart answers from smart people. Hopefully, it’s not the same smart people who helped either create or allow our current economic problems to rise.
Oh. I have one more question for Mr. Bernanke. Did you really say something to the effect of:
... it would have no effect on interest rates for consumers.
As a technical requirement, you may be correct. Banks may not be required to pass this move on to consumers. Unfortunately, we consumers do not live in a technically pure world. We live in a world free of regulations where banks have shown their proclivities to exploit any opportunities, real or imagined, particularly on those consumers least able to understand the terms of their banks's lending practices much less find effective means to defend themselves against their predatory practices.
My guess is by next month consumers will see rate increases passed on to them as a result of the Fed's recent decision to raise its interest rate....
I'll wager dinner, your town or mine. We can put it on our credit card.