Good News On The Monetary Homefront...
#11
Originally Posted by Rob x-7' date='Jun 18 2003, 07:46 PM
word has it that Greenspan is dropping the rates again this month or next.
#12
Originally Posted by phinsup' date='Jun 18 2003, 11:26 PM
This is an interesting era in loan moeny. The feds are lending money at incredibly low rates and the banks are making more money then ever. What I mean is, when the fed was loaning money at 6%, banks were loaning at 6.5% or 7% now the fed is at 1.25% or something and banks are lending at 5.5% they are loving it, so I dunno how much of a lower rate we will actuallyse see.
So, the FED trys to control this. This is how it works (simplistically). The FED issues bonds at a coupon rate (the rate on the actual certificate). If the economy is starting to stall, and the FED wants to inject more money into the economy, they will lower the short term int. rates. Thus making the Gov;'t bonds that financial institutions (bank) are holding more valuable. These bank now will want to sell these bonds to make a profit. They sell them back to the FED which pays with fresh Cash it just printed up on its printer. And that how the money supply gets increased.
So theoretically, now that banks have more cash, they should try to lend it out more to customers, who will intern spend it on stuff, and re-inject it into the economy.
Thats the theory at least. So there is a little relationship between the FED's rates and your personal mortgage rates. But its not a direct relationship.
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