Fed Moves on Long-Term Interest Rates to Spur Growth

[Botany]

Source: NY Times

WASHINGTON — The Federal Reserve announced a new plan Wednesday to stimulate growth by purchasing $400 billion
in long-term Treasury securities with proceeds from the sale of short-term government debt, defying Republican demands to refrain from new actions.


In extending its campaign of novel efforts to shake the economy from its torpor, the Fed said that it was responding to evidence that there was a clear need for help.

“Growth remains slow. Recent indicators point to continuing weakness in overall labor market conditions and the unemployment rate remains elevated,” the
Fed said in a statement that listed its reasons for worry about the anemic condition of the American economy. “Household spending has been increasing at
only a modest pace in recent months.”

The central bank said in a statement that the program was aimed at reducing the cost of borrowing for businesses and consumers, including the cost of mortgage
loans. It hopes that the lower rates will encourage companies to build new factories and hire more workers, and consumers to start spending again on homes and
cars and clothes and vacations.

Read more: http://www.nytimes.com/2011/09/22/business/fed-to-shift-400-billion-in-holdings-to-spur-growth.html?pagewanted=1&_r=1

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The republicans have promised not to work with the President to help the American people so it is now time to
just go around them.

Way to go Fed and the President because the republicans are dedicated to the political destruction of President
Obama and the democratic party they simply don't care about the American people and are betting that if they
are hurting bad enough they will take it out on Obama.

Fuck you Senators Kyle & McConnell along with Reps. Boehner & Cantor.


http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=433x777755

[abelenkpe]

1. Glad they didn't cave to republican demands

but doubt this will make much of an improvement. We still need more stimulus and a jobs program. But yeah, can't waste anymore time trying to work with reps that just want to obstruct and need to find ways to go around them wherever possible.

[lsewpershad]

2. Think

they are covering their collective ass? They know what will happen to them if America fails.

[Firebrand Gary]

3. And we are going to continue to fight for the American Jobs Act.

This should help us in the short term, however we need to address the long term issues.

[Botany]

4. hopefully this will get things going and the heat will be ...

.... turned up on the republicans and they will have to get on board w/ the Jobs Act or get
bounced from office.

[elleng]

5. 'Hopefully,' but I don't think its the kind of 'stimulus' that's really needed.

We the People need Jobs = money in pockets = buying = +for businesses.

[Botany]

6. Got to try something.

Even if it is just a little help everything that might be of help must be tried.

[kitkat0]

7. How nice of them

As a senior living on my savings, I am so thankful the fed is keeping interest rates near zero. Otherwise I might be tempted to, oh, I dunno, actually spend more than what I absolutely have to, and that might, oh, create jobs. We wouldn't want that. Better to hand gobs of free money to the banks so they can sit on it.

[Lemonwurst]

8. So you'd like to spend what you earn in interest? Here's the math...

Bank savings accounts are paying less than 1% so let's not even count those. Let's start with a 1-year CD at the current "high" rate of 1.2% APR (http://cdrates.bankaholic.com), on the assumption that you want to spend your interest, and not have it locked up for more than 1 year.

If you have $100,000.00 invested in those kinds of CD's, you'll earn a bit over $100 per month (www.bankrate.com/calculators/savings/bank-cd-calculator.aspx). The total interest earned is $1206.62. Not bad, and I agree that you spending that money helps the economy - a little.

Now, regarding this latest move by the Fed... is it going to lower those CD interest rates to zero? Let's get dramatic and say it halves it, to 0.6% APR. Now you've got about $600 less annually in which to pump up the economy.

Multiply that by an unknown number of individuals who have enough liquid savings to currently generate in the neighborhood of $1200 annually, and there's your total impact to inflows due to lower interest rates on personal savings.

But you know these are all unrealistic assumptions. At current rates, only very wealthy people can live off their savings, and anyone else that can generate meaningful monthly or annual interest are lucky, but oddly choosing to invest high amounts in cash-equivalents rather of bonds or equities. Few would consider that good money management. But again - if you're really wealthy, that might just be a sliver of your overall portfolio.

Bottom line: you might be really rich and this move by the Fed is really going to sting. If that's true - sorry to hear that. But you're rich, so hey.

I do, however, agree with your point about banks hoarding this additional available cash. Why aren't all those teabaggers frothing about these banks sitting on assets, instead of screaming at teachers, firefighters and policemen for wanting to keep their jobs and actually get paid?