Sep 20, 2012
In The American Interest, Walter Russell mead’s blog, 9/19/12,
Falling Mortgages Undercut Fed Borrowing Plan
This is like pushing on a string. The Fed is trying to stimulate the economy by keeping interest rates low, especially for mortgages, but many borrowers aren’t qualifying for loans. If banks don’t want to lend or can’t find qualified customers, it doesn’t really matter how low interest rates go. It’s a remarkable spectacle in a way: the Fed is printing money that nobody wants.
Low interest rates punish savers, but reduce the costs of large public corporations who are able to borrow. Small businesses and the retired suffer, large corporations cut interest expense and improve their bottom line.
People borrow when a) they hope to profit from their capital and b) when they are secure in the future. The level of interest rates are secondary. Higher taxes and regulations reduce the profit potential and no one is secure in the future of a country with such uncontrollable debt. Without addressing these concerns printing money and dropping interest rates is futile.