08.22.2014  |   | Subscribe  | Contact us

All News & Blogs

E-mail Alerts

There's no interest in low interest rates; it's all about jobs page 2
Low interest rates are a double-edged sword

Date published: 12/14/2012


Several months ago, I allowed a certificate of deposit to roll over and when I checked my rate I found I was getting .25 percent. That's right. The same bank that was charging 7 or 8 percent for a car loan wanted to give me a quarter of 1 percent interest on my money.

Those of my generation were taught that if they saved their money, they could get good returns when they got to retirement age. If you could somehow save $100,000 you ought to be able to earn $8,000 a year (at 8 percent) on that money.

Now, at .25 per cent (you get less than that for regular savings), you would earn $250 on that $100,000.

This makes the Fed's low-interest rate policy a double-edged sword. Businesses aren't borrowing the cheap money, so it is not helping spur job growth as intended.

Meanwhile, those with savings are getting virtually no return on their money and these are the people who would be spending if the money they had put in the bank was earning decent interest.

The argument, of course, is that these Americans over 50 already have their homes and their furniture and they won't buy.

That's a lot of bull. Do you know how many parents and grandparents are being asked to help their children and grandchildren today? It is occurring in almost every family.

If those with savings were earning more interest, they would be spending more and further greasing the economic wheel. They would be eating out more, buying newer cars and providing more help for their struggling children.

Low interest rates aren't helping the economy. Those who aren't working don't qualify for mortgage loans, and houses sit empty despite 3.5 percent rates.

Jobs spur home sales far more than low interest rates. When I bought my first home, my mortgage rate was 9.75 percent. Yes, the home price was 10 percent of what it would be now, but I was making 10 percent of what I'm making now, so the playing fields were even.

I bought (and paid for) that house at 9.75 percent interest because I had a job and was confident that I was going to keep it. And the bank let me borrow the money because I had a job.

Jobs and confidence are much more important to a struggling economy than low interest rates.

Present Fed policy has proven that.

Donnie Johnston:
Email: djohnston@freelancestar.com

Previous Page  1  2