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by Robert Franco | 2007/11/08 |

Did anyone notice that the national debt was broke the $9 TRILLION level on Tuesday? We went from George Washington to Ronald Reagan before the national debt exceeded $1 trillion; that is about 200 years. Yet it only took us about 20 years to go another $8 TRILLION in debt!

So, I have another theory about why interest rates have been kept so low for the past dozen years or so. If you were servicing the kind of debt Uncle Sam has amassed, wouldn't you want the lowest interest rate possible?? It would seem that our government has fallen to the same kind of spending as the general public - they don't spend what they have, they spend what they can afford to borrow!

Just like John Q. Public who buys a bigger house than he can afford because lower interest rates allows him to borrower more money, our government has been able to get away with record spending because money was cheap! Sooner or later we are going to have to pay for that mistake. Already, due to lower interest rates, the value of the dollar has fallen. When measured against the British pound, the dollar is at a 26-year low ($2.10). A shrinking dollar means that imported goods cost us more.

Typically, to fight this effect, the Federal Reserve would raise interest rates. However, that would like slow spending and dampen an already weak economy. With home prices expected to decrease and oil prices expected to increase - what is the Fed to do? It is likely that it will do nothing.

According to an article on MSNBC:
Mr Bernanke is expected to reaffirm the Fed view that the risks are now roughly balanced, implying that rates are no more likely to go down than to go up. However, he will likely also emphasise that the Fed will remain flexible in the face of economic uncertainty. The bank's new policy stance is neutral but it will respond in an activist manner to incoming data.

With all of the uncertainty, turbulent times are ahead. The struggling housing market will not see much help from the Federal Reserve. This nation, much like its citizens, needs to adopt better spending habits. Uncle Sam is setting a poor example for us all.

Robert A. Franco

Source of Title Blog ::


Categories: Economic Indicators

513 words | 2370 views | 4 comments | log in or register to post a comment

Which is why we need to switch to t...
Which is why we need to switch to the gold standard and eliminate the role of the Federal Reserve in setting interest rates.

If our currency is on the gold standard, then the government cannot simply print its way out of deficits by expanding the money supply. They will still try to spend beyond their means, but at least this way they cannot do it by devaluing the dollars we have in our hands right now.

If the market is allowed to set interest rates rather than the Federal Reserve, then we would get rid of these cycles of feast and famine with consumer borrowing. Interest rates will still fluctuate, but it will be based on collective individual actions, not a top-down decision by an unelected board "guessing" what the economy will do next.
by David Jenkins | 2007/11/08 | log in or register to post a reply

Let me get this straight--not only ...
Let me get this straight--not only are all our jobs being moved overseas, but now the money I do have is losing value as I write this? How much is a one-way ticket to India? I better buy it quickly, while I can still afford it. 
by Anonymous | 2007/11/08 | log in or register to post a reply

The currency in India is the Indian...
The currency in India is the Indian Rupee. In January, $1 would buy you 44.30 Indian Rupees. Today, $1 will only get you $39.49 Indian Rupees. So apparently, the dollar is even losing ground compared to Indian currency.

The good news, however, is that soon it might cost more to get a title search done in India than it does here!
by Robert Franco | 2007/11/08 | log in or register to post a reply

I agree with Dave. Going off of th...
I agree with Dave. Going off of the gold standard was the worst thing this country ever did. With China sitting on over $1.2 trillion in reserves, with most of it in US-backed assets, I think I'm going to start insisting that my clients to pay me either in Euros or Yen.
by Scott Perry | 2007/11/08 | log in or register to post a reply
Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco



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