Mar 3, 2008
In the wake of the growing housing crisis and recession, the Federal Reserve has dramatically cut short term interest rates on money that it loans to the banks, from 5.25% last August to 3% today. And more cuts by the Federal Reserve are expected in the future.
These cuts have been applauded unanimously by U.S. officials, the news media and other so-called experts. They characterize these interest rate cuts by the Federal Reserve as “medicine” to supposedly “stimulate” economic growth by making borrowing cheaper.
Of course, what is not mentioned is that these interest rate cuts by the Federal Reserve are very costly. To pay for them, either the Federal Reserve has to get funding from the U.S. Treasury, thus contributing to the mushrooming budget deficit. Or else, the Federal Reserve will simply print more money without any backing – contributing to more inflation, which finally penalizes consumers – ordinary working people – through higher prices.
And all this doesn’t even buy consumers lower interest rates. For these banks and financial companies are not passing on their lower cost of credit. On the contrary, they have turned around and increased the interest rates that they charge consumers for home mortgages, auto loans and credit cards, thus squeezing consumers, already overburdened by record amounts of debt, even more.
So, all claims that Fed rate cuts are being used to supposedly “stimulate” the economy are a complete fraud. No, the only thing being stimulated is higher profits for the banks and big financial companies.
The interest rate cuts by the Federal Reserve are nothing but a massive bail out of the very same banks and financial companies that are behind the whole subprime mortgage and housing crisis.
It’s as though the courts handed a convicted murderer his gun – and said “Go use it!”