Once again, the Fed has cut the rate it charges banks for money, in an effort to spur the economy. Uncle Sam takes care of those “too big to fail” yet- absolutely fails the consumer it claims it’s trying to help spend more freely.
Now at 1.5% we’re getting close to giving away the dollar for free, which means, it’s not worth a damn thing. With rate cuts in the prime, consumers will see increases in the costs of imported items- like oil and everything made for Wal-Mart (in China).
Here is how they describe the cut, and what it is supposed to do in the press today:
Fed Chairman Ben Bernanke and his colleagues ratcheted down their key rate by 0.5 percentage point to 1.5 percent. The action revives the central bank’s rate-cutting campaign which had been halted in June out of concerns that those low rates would worsen inflation. Since then, however, economic and financial conditions have dangerously deteriorated, forcing the Fed to reverse course.
The fact that the Fed felt it couldn’t wait until its regularly scheduled meeting on Oct. 28-29, underscored the urgency of the situation….
In addition, the Fed reduced its emergency lending rate to banks by half a percentage point to 1.75 percent. Given the intense credit crisis, banks have been ramping up their borrowing from the Fed’s emergency “discount” window.
In response, the prime lending rate for millions of borrowers will drop by a corresponding amount. The prime rate applies to certain credit cards, home equity lines of credit and other loans.
The hope was to spur nervous consumers and businesses to spend more freely again. They clamped down as housing, credit and financial problems intensified last month, throwing Wall Street into chaos. Many believe the country is on the brink of, or already in, its first recession since 2001.
But, if they really want to re-assure consumers, it’s time to stop the banks from raising rates on credit cards at will, cap the rate at least 10 points lower to under 20% and halt the practice of allowing people to charge when over their limit- then dinging them with fees and rate hikes.
By putting these conditions on the billions being handed to banks at lower rates, we may see some sense of relief on Main Street. Other wise, it’s just one more opportunity to those with all the money, to continue to make all the money.
It’s time for Fed Chairman Ben Bernanke to realize, as long as banks issue credit cards at will, he doesn’t really have control of the money supply anymore. There has to be a linkage between prime rate and charged interest rates on one of the biggest pools of public debt- our great American invention- the credit card.