Once Again, Banks Bailed Out at Consumers’ Expense
Only a little while ago the Federal Reserve set the new target range for the federal funds rate to 0-0.25 percent. A record low.
But that’s a whole lot of babble for most people. Here’s what’s important: Your Government has once again bailed out the banking system at the expense of the regular consumer. One of the main ideas behind this most recent cut is to push consumers to move their money from low-risk decent-gain money market accounts to deposit accounts with very low interest rates. Once safe money market accounts may now have trouble covering expenses and may actually post negative returns. That’s bad news for the average consumer who just wants to let their money sit in a simple bank account. This means that you are essentially being forced to bail out the banks yet again, by putting your money into accounts that provide them with increased stability in exchange for decreasing your income.
No, this cut will not help consumers with their car loans or their credit card bills. You won’t see your interest rates going down any time soon. Instead, this is an inducement for lenders to continue to make loans while pulling a greater profit out of the process.
That’s right, the government is encouraging the people who screwed you and the rest of the country over to do it all again.
The rate cut encourages risky investments and high risk trades, exactly the activity that got us in this situation to begin with and it penalizes those who don’t play the market–the majority of America. If you’re not standing on the trading floor there’s a better chance of the Fed’s cut having a negative effect than a positive one.
The idea is to counter the possibility of a “deflationary spiral” of the same type that caused the Great Depression, but the resulting strategy is to cause inflation, which means a weaker dollar. A weaker dollar means that the average price of consumer goods will go up and the value of your money will go down. There is the possibility of further negative effects as well and the chance that the US may face the same situation as Japan in the 1990s. During their economic crisis, they followed a similar strategy, and found no success.
So, if you are not a bank, a large corporation, or a day trader, the Fed’s cut leaves you in trouble. You face less options for creating money through savings; higher prices on consumer goods, including oil, lunch, and other everyday products; and you chance seeing an overall decrease in the value of your money.
Instead, we’re pouring money into a failing system and essentially forcing them to keep on doing the very things that got them into the situation in the first place.
