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

Date published: 12/14/2012

EARLIER THIS week, Federal Reserve Chairman Ben Bernanke announced that short-term interest rates (between the Fed and banks) will remain near zero until the unemployment rate drops to 6.5 percent.

Under the "new norm" and with the likelihood that there will be more job layoffs as Obamacare takes effect, interest rates may remain low for a long time.

But is the Federal Reserve's policy on interest rates helping the economy or hurting it?

The Fed's prime rate is now so low that if it were a limbo pole an ant couldn't get under it.

In theory, low interest rates are supposed to help a struggling economy. They allow companies to borrow cheaply so they can make improvements to their infrastructure, create more inventory and hire more workers.

These low rates are also supposed to boost consumer spending by keeping mortgage rates and finance charges low. That should encourage the general public to run right out and buy big-ticket items such as homes and cars.

Well, after four years of historically low prime interest rates, none of that has happened. Home sales are still at 20-year lows despite mortgage rates under 4 percent.

As for cars, well, go to your local bank sometime and check out the rates on a car loan. While the prime rate is less than 1 percent, banks will sock you for as much as 8 percent for an auto loan.

Consumers could have gotten those rates when the economy was in high gear and the prime was 5 percent. Only dealer incentives, which are not directly tied to the Fed rate, offer low-rate financing.

Meanwhile, all those companies that are supposed to be scooping up that cheap money aren't. Instead of borrowing, the big corporations like Apple and Microsoft are hoarding billions of dollars in cash and sitting on money, keeping it out of circulation.

Small mom-and-pop companies, on the other hand, are either afraid to borrow because of the sour economy or they don't qualify for loans.

According to the bankers I know, commercial customers aren't beating down their doors trying to get cheap money. Instead, business owners are sitting and waiting until the economy improves before they dig themselves a financial hole.

No, low interest rates haven't spurred the economy along. In fact, they may have hurt it because there is another side to this low-prime coin.


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