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Posts Tagged ‘interest rates’

M.O.A.B.

November 23rd, 2009

There have been a number of wild rides through bubbles in the last decade or so.  There was the dot-com bubble that closed out the 90’s and welcomed in the new millennium.  Then there was the financial bubble, the credit bubble, the housing bubble…

Arguably many of those are inter-related, and chances are, you were affected by at least one of them.

So where is the next bubble?

First, I’ve come to accept the fact that history will repeat itself.  We are all poor students of history, but deeper, no one can really understand all the forces at play to effectively stave off a repeat of a certain event.

With that, it’s realistic to assume there is another bubble brewing as we speak.

With all the government intervention in finances, and the U.S. Fed’s “as low as we can go” interest rate policy, I suspect the next bubble will be in interest rates.

If there is one thing that history tells us, and it seems those in power never seem to study enough, is that the Fed is notoriously late when it comes time to act on monetary policy.

Most recently, Fed Chairman Greenspan was slow to lower interest rates which kept borrowing at bay when borrowing was most needed.  To that tone, I suspect Fed Chairman Bernanke will be slow to raise interest rates in an effort to keep inflation at bay.

Since any sort of monetary policy is based on lagging economic data (by 3 months or so), it’s understandable why interest rate moves also suffer from the same lag.  Historically though, interest rate moves have been late to the game by as much as 8 and arguably 10 months.

In the end, I suspect Bernanke will delay raising interest rates until late next year, and he’ll be forced to raise them to levels he’d not anticipated to keep the wraps on inflation.

So what makes this the Mother Of All Bubbles?

In one word, China.

Unlike the past, the Chinese are taking a great interest in our monetary policy, primarily because they own so much of our debt and currency.  To say the Chinese aren’t really happy with how things are going would be an understatement.

The Fed wants to keep rates low for fears that increasing rates will hamper an economic recovery.  But the Chinese have more leverage in our debt than they do in our unemployment rate.  They’re really looking out for their own financial interests, and who can blame them.

The Chinese are worried that the current U.S. policy is creating insurmountable risks to the recovery of the global economy, and they’re worried we’ll bring them down with us.

Any freshman in a college history course knows that the Chinese will do just about anything to keep their economic freight train steaming down the tracks, and they’re not real happy about the prospect of U.S. monetary derailing that train.

They own a lot of U.S. debt, and they’re not afraid to use that debt to influence policy in the States.  Higher interest rates will appease them as it will increase the value in their holdings.  It’s only a matter of time before Bernanke will have to oblige.

Higher interest rates is what they’re looking for, and higher rates they will get.

I suspect that interest rates will be late to go up, and will go higher and stay higher for longer than they need to.   All in the name of keeping the Chinese at bay.

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Banking, Economics, Finance , , ,

Refinance Update

February 19th, 2009

Nothing ever goes as smoothly as planned, and my refinance project with Wachovia isn’t abnormal in that regard.

My rate was locked in at 4.625% way back at the beginning of January, and that rate was good until February 20th.  Seeing as how it was almost February 20th and I hadn’t heard anything, I figured I’d give the refinance department a call.

A call to the previous representative landed me with an operator who said there had been some changes made in the refinance department, and I had a new representative handling my application.   After talking to that person, it was evident that the data requested from the IRS didn’t quite make it to her desk.  Go figure.

Since the previous person had requested the information, the new handler didn’t have access to the information, if it even showed up from the office of Uncle Sam at all.  So the information had to be requested again.

But what about the rate?

There was still the question about what was going to happen on February 20th if we hadn’t closed on the refinance.  I was assured that they would hurry the application through, and pass it on to underwriting as soon as possible.

I also asked that they submit a rate extension, which I was told would be no problem.

So the application is still in the works, but should be finalized any day now.

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Another Dollar Savings Direct Rate Drop

February 5th, 2009

Dollar Savings Direct has dropped their online interest rate to 3.20% from 3.5%, and I suspect the trend will continue.

Dollar Savings, a spin off from Emigrant Bank much like Emigrant Direct, is still an online leader for interest rates, but for those of us who are trying to maximize the insured return on cash, it is frustrating to watch the interest rate continue to dwindle away.

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