Economic recovery and bailouts
Unless you’ve been living under a rock, you’re well aware of all the talk (and actions) of bailouts. What is needed are bailouts for everyone. One of the simplest, and possibly most effective would be interest rate cuts for consumers; on credit cards, auto loans, mortgages, etc. The incoming Obama administration has said that one of the things they want to do is use the clout of Fannie Mae and Freddie Mac to drive down mortgage interest rates. This is probably a good thing, but what about existing mortgages?
No doubt about it, times are tough, especially for property owners. Increasing costs and taxes, and declining revenues are a killer combination.
So, how about this: All variable rate mortgages get converted to fixed rates – somewhere in the 4-5%range. Existing fixed rate mortgages get their interest rates cut to the same range.
Cut the interest on consumer debt (credit cards, auto loans and the like) to a maximum of 7% – lower would be better.
Prohibit credit card companies from raising interest rates for late payments or defaults. After all, if someone is having trouble making payments, would raising their interest rate (and therefore their payments) help? I don’t think so.
The Obama administration has already said they’re going to cap interest rates at 36%, the idea being to target payday lenders and other financial predators. In my view, this is still unconscionable and usurious — NO interest rate should EVER be in excess of 12% – for anything — and this should be ensconced in federal law. Ever notice how many credit card companies are based either in Delaware or North Dakota? That’s because of state laws allowing exorbitant interest rates, that most other states prohibit.
Cutting these consumer interest rates would give people a little breathing room, and free up cash to be spent.
Businesses should also have their interest rates cut, to the same levels, and for the same reasons.
The Fed should make longer term, low interest money available to to financial institutions to make this all happen.
With the Fed pumping all this money into the economy, I think inflation is going to rear it’s ugly head yet again; but it may not be an entirely bad thing to happen. As wages and prices go up, we’ll (hopefully) be able to pay for this stuff with cheaper dollars.