General Question

Adina1968's avatar

What does it do as far as helping the economy, when the feds cut interest rates?

Asked by Adina1968 (2747points) March 18th, 2008
Observing members: 0 Composing members: 0

10 Answers

cwilbur's avatar

It makes it cheaper to borrow money. This means that people and companies should more willing to borrow money and do things with it that generate wealth, and that wealth generation is what makes the economy grow.

The flip side is that if people borrow money who can’t pay it back, the organization that lent the money to them is in trouble. Some amount of this is to be expected, especially with risky things like business loans, but if it happens more than is expected it creates a big problem. (For an example, see the current housing and mortgage crisis in the US, which is the result of low interest rates and lenders exercising poor judgment.)

glial's avatar

Promotes spending.

trainerboy's avatar

Right now with the value of the dollar, it causes gas prices to rise even higher. It is supposed to stimulate spending which spurs inflation and cause the government to print more money which makes money worth less. Sometimes, depending on situation,it can be a catalyst out of recession. At times like these, it may have reverse effect. That is my view from an economics 101 perspective.

Charlie's avatar

IIT doesn’t do a thing for the average person unless you barrow money from the Feds. But this is a lowering of the interest rate to OUR government because it is operateing on barrowed fake money which affects US because it is US that have to pay for it in the long run, not the people within the government. In the end, it isn’t going to solve the problem because the so called dollar has about as much worth as the paper it is printed on. There is absolutely nothing to give any value to the dollar ( the Federal Reserve Note). It is backed by credit, printed from debts, and only has a value out of faith. That faith is the issue and the rest of the world has lost faith in the Feds. dollars since there is very little National Gross Product (NGP) left since OUR politicians sent everything out of this country to be made for US. I have been turning all my FAKE dollars into silver coins which compaired to a FEDERAL RESERVE NOTE one silver dime is worth $1.42 of their fake money or .42 cents better in faith then theirs. Now multiply that by 1000. AND, the Constitutional LAW says “NO thing shall be used in payment of debts but Gold /Silver coin”. THAT law is still the LAW of the Land.
When a person says FEDS it is a miss-use. In the case of the Federal Reserve System it does NOT mean Federal as in Federal government. It means Federation as in corporation because the Banking system is NOT of our government but of a PRIVATE CORPORATION (Business) which the IRS is part of. The United States has no issued money. What we use is Federal Reserve Notes which is printed up by our government printing department for them. The IRS is a collection company which levies a charge against WE the People for useing their play money. The only money that the government gets that you send to the IRS is a percentage of how much they get from US as any corporation pays a percentage of their profit/income. BUT, since the Feds lowered the interest rate, all that means is that they don’t have to give the government back as much as they did!!! WE, the people, will still pay the same.

trainerboy's avatar

Bend over and find out!!!!!

gooch's avatar

It makes us buy big ticket items on credit

qashqai's avatar

In Japan, few years ago, interest rate was approximately around 0%.
In that way Tokyo’s central bank tried to avoid the upcoming and feared recession.
The recession came anyway, and lasted for about a decade.
I don’t think cutting interest rates so often will, in the long term, help US to get out of the tunnel. US economy is no longer the strongest in the world and needs to adjust to this new global scenario, pretending is still the leading force will just cause further damage.

Charlie's avatar

If , and that is a big IF you read the Constution of the UNITED STATES, which is the LAW of this country, YET, then there won’t be a problem. The people of this country has given the head to the Federal Government and have forgotten that it is WE the People that is the Law, not some idiot that Works for US. Go read thr BOOKS. If you don’t get your guns and keep them handy cause you are going to need them!!!

ironhiway's avatar

In this case it may be an attempt to bail out the banks by providing a product (money) for them to generate enough to recover from their foolish lending practices.

It will devalue the currency and cause inflation especially on foreign made products and materials. This will increase foreign purchases of US products because they will be cheaper for them. This will slow the trade imbalance some.

Charlie's avatar

The Banks are in trouble! For one, there is a whole bunch of money missing from the US. The other is that there is NO Federal Reserve but a bunch of privately owned banks that have loaned out more money then what there is a National Gross Output ( everything is made in China). Combine that with easy money an the whole value of the Federal Reserve Note goes down. Raiseing the interest rate, or lowering it, only stays the true problem of NOT haveing a GNP. A country and it’s people cannot have value if there is a money system in affect that has no value. Lowering the interest points only creates more debt because people foolishly will barrow more or confert their current loan to another to get a lower interest rate, Refinance which then means the Loan they have is restarted so they end up paying more in the long run. It is a loose, loose situation for anyone that is liveing with a loan. The $ is dropping like a rock in value because there is nothing that is used to make it valueable other then barrowed money and the GNP is gone that once backed it up. To make it short, your Federal Reserve Notes ( Promisses to pay) has nothing to pay you with that is actual money of value, GOLD or SILVER coin! The banks create money out of thin air. Createing money isn’t money but only represents a debt or credit on the banks of the Federal Reserve System which they use to print more worthless $$$$. A peice of paper isn’t money. It is nothing but a representatitive of a debt that someone owes to someone else even if there has been no money exchanged. It comes down to a few figures marked in a book that is suppose to balance a debit to a credit and the interest rate has little affect on either.

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