Beyond the reported ill effects on Main Street of the government’s actions to fix the economy, there are other hidden bad consequences as well. Because the Federal Reserve has decreased interest rates to artificially low levels over the last nine months to stimulate lending (by the way this hasn’t worked either) the earnings of many small community banks have been adversely affected. Many of these banks were responsible and took no part in subprime lending. These institutions are important to millions of Americans on Main Street who rely on them for loans and savings accounts. One of the last things we need is a crisis in the community banking industry. Current government policy is already making it hard for these institutions to succeed.
Lastly, another hidden bad consequence of the government’s actions is a lowering of the yields on money market and savings accounts. Again, as the Fed lowers interest rates artificially, savings and money market rates also decline. Go online or check your next bank statement to see that your savings rate has gone done. With more people on Main Street hurting, especially pensioners and those on fixed incomes, the last thing they need is for their last safe haven to be upended by government policy. But that is what is happening.
We could take Washington at its word that it is doing its best to help Main Street through this crisis. The consequences of its actions speak otherwise. Then again, maybe Washington is doing its best; because when it does its best, we are at our worst.
Article comments
1 - Les Slater
The problem is not fundamentally liquidity. It is the low likelihood of making a sufficient profit from investments. It doesn't matter how much capital there is or how cheaply it is to borrow. Even free money is not attractive to capitalists if they stand to lose part of it by investing.
Unemployment is now rising, or will soon rise, in most countries. It is predicted by many economists that U.S. rate will be between 8 and 8.5% before the end of the year. We already see how this is affecting consumer spending. Consumer, and as a consequence, commercial spending, will continue to drop as unemployment rises.
At present there is a very strong likelihood that we are headed for a 30's style depression. There are beginning signs of deflation.
Economists are hoping, beyond hope, that the Chinese economy will be the motor force to prevent a general worldwide collapse. The problem is that the markets that China sells to are ALL tanking.
2 - Les Slater
Nobody else has commented on this topic to date, however there are those in the financial industry that are beginning to see some of the things I'm talking about.
In today's Financial Times, Merrill chief sees severe global slowdown:
"The global economy is entering a slowdown of epic proportions, comparable to the Great Depression, John Thain, chairman and chief executive of Merrill Lynch, warned on Tuesday."
3 - Francois Breton
I approve your comments concerning billions dollars bonuses to company that has been helped by money coming from the people. It is probably impossible to recuperate this money. But would there be a way in "inviting" the concerned people in investing the money received in the compagnies. If they have faith in the survival of the compagny it would be just an investement.
By publicising this, it would be ticklish for them to refuse.
François Breton
4 - bliffle
Looks like a well-orchestrated looting of the US treasury, setup by the Bush administration as a parting gift to their friends in the financial 'industry'.
5 - bliffle
The cynical reality of Kenns opening sentence becomes more obvious every day: "Congress, the administration, and the Federal Reserve Chairman have repeatedly told us that they are working hard to fix the economy for the American people."