In the last year I've watched home mortgage loans decrease 155 or so basis points while the discount rate has decreased 400 basis points. EITHER THE BANKS ARE IN SEVERE TROUBLE, EXTREMELY GREEDY, OR THEY SEE, MISTAKINGLY, INFLATION ON THE HORIZON. If I'm not mistaken consumer spending, in the long run, will save the banks. Can somebody explain to me how this will help increase consumer spending?

-- Steve McClendon (ke6bjd@yahoo.com), October 03, 2001

Answers

The stock market, which reflects investor sentiment everywhere, is no longer a leading indicator Because of all the phoniness in atrificially propping it up, it is now a lagging indicator. With the economy crashing all around us, as evidenced by eight rate cuts just this year - that's panic - for a total of 400 basis points, and the stock market still, superficially, holding up fairly well, there's only one answer. Mortgage lenders are looking ahead to the inflation that always results from another business boom, an attitude developed from following the lead of the stock market which seems to be indicating an early recovery next year.

Talk about a bunch of ostriches with their heads in the sand, this takes the cake.

-- Billiver (billiver@aol.com), October 03, 2001.

It won't help consumer spending very much. It might make it less expensive for businesses to offer incentives to jumpstart consumption for example auto dealers offering 0% interest.

I would imagine the biggest aid for the economy is for the banks to rake in the money to help pay for the excessive number of bad loans, poor business decisions (like auto leasing) they've made and for the continuing escalation of deliquent loans and bankruptcies. If banks started to fail then that would cause a serious consumer confidence issue. In this way, the Fed helps to insure that they don't.

If anything it hurts the average person because interest on there savings is going to drop to zero or close to it.

I don't believe the inflation issue has anything to do with it. In this economic environment the only idiots bold enough to ask for raises are the unions.

-- Guy Daley (guydaley1@netzero.net), October 03, 2001.