Inverted interest rates! What are they? Should you care? Read
this informative article and find out everything.
Inverted Interest Rates
By
Al Thomas
Inverted interest rates? What’s that? Who cares? Even if you
don’t understand what Mr. Greenspan is saying (and almost nobody does) it is
important to you because it could mean you might lose you job next year or have
to cut back on some of the things you want to acquire.
It really is very simple, but most of the media broadcasters don’t understand
it because they are reading from a script written by someone else who doesn’t
understand it either. Let me take a whack at explaining it in plain language.
There are two kinds of interest rates – short term and long term. The amount
of interest paid has to do with the amount of time that is involved. We are
talking about long term and short term bonds that pay dividends. If you lend me
a thousand dollars with the agreement I will pay you back in one year you can
easily understand that the risk is less than if I agree to pay you back in 20
years. The amount of risk is reflected in the rate of interest. Longer is higher
and shorter is lower. Pretty simple.
Now we throw the monkey wrench into the machinery. Greenspan arbitrarily sets
interest rates rather than letting the market place determine them. The
so-called Fed Funds rate is the short-term interest rate set by Greenspan that
banks charge each other when one bank loans to another or from the Fed. The
basic policy of banks is to borrow short and loan long. That means they borrow
money at lower rates (5%) and loan out at higher long-term rates (6%).
Unfortunately, we now have the monkey wrench that is ruining the machinery
because the short-term rate is higher than the long-term rates.
This effectively cuts down on the amount of money banks have to loan and
means the banks must cut back on loans for new business and loans for old
business expansion. This is a very effective tool that our big money guru is
using. Big G has said he wants to slow down the economy and he is doing it. He
thinks a 2 ½% growth is fast enough; however, when you slow to 2 ½% from 6% that
is 58%. Too much, too fast. What would happens if your company had 58% reduction
in growth?
Money is the lifeblood of our economy. When you curtail the money flow it is
like a person having congestive heart failure. Some people die and some
businesses go bankrupt, but both must slow down drastically.
The amount of money flowing in our economy must be increased and the quickest
way to do it is for Greenspan to reverse his course and start lowering the
rates. Most of this break in the stock market can be laid at the doorstep of Mr.
Greenspan. His micromanaging can lead to a recession.
Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of
people make money and keep their profits with his simple 2-step method. Read the
first chapter at
http://www.mutualfundmagic.com and discover why he's the man that Wall
Street does not want you to know.
Copyright 2005
al@mutualfundstrategy.com;
1-888-345-7870
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