According to people in the financial media, it was a big deal. This, despite the press release being almost a carbon copy of their last press release, and no change in the federal funds interest rate (0.0-0.25%), had lots of people on edge until the 2:00 pm ET announcement and somehow ended up being net positive for stocks. All of the major indices finished the session with gains, most of them made after the FOMC announcement and Powell's press conference.
It's interesting that so many people, with so much money, pay so much attention to a bunch of egghead economists who have basically wrecked the economy and debased the US$ currency by 98% over the past 107 years. Why would people commit time and effort to figure out what this group of people is doing when, on the surface, they don't really do much at all?
Well, for really, really rich people and people who manage money and assets for those people, little changes can add up to lots of money gained or lost. Big, multi-national corporations like to know that they can continue borrowing at close to zero percent interest and for how long. For those people, the Fed has maintained a constant green light pretty much since March of 2009.
People who have mortgages on their homes, vacation homes, second homes, or commercial property want to know that mortgage rates are going to stay low, being that the federal funds rate has implications for all other interest rates.
For people without much “skin in the game,” i.e., people without stocks or mortgages, the Fed’s actions mean little. Many people out in the real world pay rent instead of owning a home, and, if they’re fortunate enough to have a job, get paid in Federal Reserve Notes (AKA US$), pay their bills with cash or checks, and don’t really pay much attention to Powell and his fellow eggheads. These people are commonly referred to as “consumers,” because they consume things in the economy, like food, clothing, cars, kitchen sinks, toys, computers, and assorted goods and services that keep the economy and businesses humming along.
If, however, these consumers have a personal loan, student loan, car payment, credit card, or any other kind of debt, they are confused by all the interest in the Fed and why their interest rates are so high if big institutions can borrow money for almost nothing.
For instance, depending on one’s credit score, a new car loan can carry an interest rate as low as 4% and as high as 14%. Used car loan rates range between 6% and 21%.
Credit card rates are even worse, ranging from 14% to 25%, with penalty rates at high as 29.99%. If a consumer misses a payment or go over your credit limit they get hit with the higher rate. Credit card issuers can increase the interest rate on credit cards for any reason if the account is more than one year old and there’s no limit to how high that rate can go. They also can assess various penalties which cost the consumer even more.
So, if a person is late or misses a payment, the credit card company or bank usually increases the interest rate and likely to limit the line of credit. If a big company has trouble paying off a loan - at a very low interest rate - the bank will likely call and make arrangements, loan them more money, and, if they get into serious trouble, the Fed - yes, Jerome Powell and his egghead buddies - will bail them out.
It’s a very unlevel and unfair playing (and paying) field. It's very troubling because consumers purchase goods and services produced by the big corporations. They get low interest rates, mark up their products and charge well beyond their costs to produce, and the consumer pays, often not just the higher price (inflation), but a premium if purchased with a credit card.
Personal credit cards have been a staple of American business since the 1960s. Prior to that, interest rates were reasonable and many states had what were then known as usury laws. Banks and credit companies could not charge above a certain percentage rate. Usury laws had their origins in the Roman Empire. Beginning somewhere around 443 BC, interest rates on all loans were capped at 8 1/3%. This rate persisted almost worldwide until until 1543 AD, nearly 2000 years.
As populations grew and time marched forward to the industrial revolution, various countries and states within the United States began to write their own usury laws. Many states capped interest rates at 12 to 18%, but in 1979, the landmark Supreme Court decision in Marquette National Bank v. First of Omaha Service Corporation changed everything, allowing nationally-chartered banks to "export" their interest rate from the state in which they were incorporated, doing an end run around state usury laws.
Since then, usury laws have been nullified by federal laws superseding them. Effectively, there are no usury laws in the United States. Banks and oher financial firms can charge whatever interest rate they see fit, often referred to as predatory lending which encompasses almost of the financial industry that has been making enormous profits from consumers for decades. So-called payday loans charge interest as high as 350%, making a $1000 loan cost $4500 over the course of a year. It's actually not criminal, though it should be.
The US congress (oh, boy, them again) has allowed interest rates on credit cards and consumer loans to rise unregulated since the 1980s. A few attempts to establish a national usury rate have failed, primarily because people in congress are lobbied extensively by banks and financial firms are among the top donors to political campaigns. Thus, people in congress have juxtaposed their constituencies from the district or state they represent to the people who finance their campaign. Congress - in terms of banking and consumer protection, as well as in many other areas - doesn't represent people; it represents business, at the expense of people.
To eliminate confusion about why corporations get the best deals on interest rates and consumers get the shaft, one need look no further than congress and the Federal Reserve, which, in addition to openly promoting inflation, could reinstate usury laws, since they exert so much control over banks and credit institutions, but they don't and they won't.
That's why people pay so much attention to Jerome Powell and his FOMC Flying Usury Circus. It affects everybody in some way, from low, low interest rates for business, to high, high interest rates and inflation for consumers.
Just since 2000, total US consumer credit has increased from $1.7 trillion to over $4.5 trillion. The country is having its currency strip-mined by banks and financial firms. The Fed and congress enable it and actively promote it.
Announced Thursday morning, 770,000 people filed for unemployment benefits last week.
At the Close, Wednesday, March 17, 2021:
Dow: 33,015.37, +189.42 (+0.58%)
NASDAQ: 13,525.20, +53.63 (+0.40%)
S&P 500: 3,974.12, +11.41 (+0.29%)
NYSE: 15,731.15, +61.85 (+0.39%)
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