Low Interest Rates Permeate Economy

By Ron Scherer writer of The Christian Science Monitor | The Christian Science Monitor, June 3, 2003 | Go to article overview

Low Interest Rates Permeate Economy


Ron Scherer writer of The Christian Science Monitor, The Christian Science Monitor


Call it the Alan Greenspan low-interest-rate diet. Yes, fat-free borrowing.

Low interest rates have now percolated through the entire economy: housing, retailing, corporate borrowing, auto loans, and government loans. In a nation that borrows $20.7 trillion per year, this has meant an enormous savings. Compared with only three years ago, Americans are now paying $500 billion a year less. In fact, compared with just a year ago, they are saving $300 billion a year - close to the total six-year tax cut that just passed Congress.

When the Federal Reserve meets at the end of this month, many economists expect the Fed to drop interest rates by another 1/4 of a percent. This would bring the Fed Funds rate, a short-term rate, down to 1 percent - the lowest rate since the 1950s, when the Ozzie and Harriet generation were learning about savings accounts.

"It has kept the economy afloat," says Bill Sullivan, a money- market economist at Morgan Stanley in New York.

Monday, a new round of reports painted a mixed view of the economy. In April, construction spending slowed to its lowest level in four months. But a May survey of manufacturers found that the slowdown in business was easing somewhat. The reports were in line with others last Friday, which showed consumer spending and income flat in April but confidence improving in May.

Although the stock market interpreted the economic news favorably, Bob Brusca, an economist with Native American Securities, says the data continues to show "little evidence of a building rebound or gathering of momentum."

The bright spot

Through these ups and downs, one bright spot for consumers has been interest rates. That's a change from the past, thanks to a major shift in the way Americans view borrowing and money. Thirty years ago, Americans were quite conservative - thinking only in terms of 30-year fixed-rate loans or five-year term loans for an automobile. But now there are scores of bank loans that are linked to short-term interest rates, such as a Treasury bill or the prime- interest rate (the rate charged to the best corporate customers).

"The household sector now has the ability to raise money, to borrow against short-term interest rates," says Mr. Sullivan.

Take adjustable-rate mortgages (ARMs), which three years ago accounted for 25 percent of all new loans, according to the Mortgage Bankers Association. As short-term rates have dropped, so have the rates on ARMs. Three years ago, the rate on a one-year ARM with a 30- year amortization was 5.84 percent. On a $200,000 loan, this was a monthly payment of $1,177. Today, the same rate has shrunk to 3.09 percent, or an $853-a-month payment. This 27.5 percent drop represents "a real opportunity for those who have taken advantage of it," says Jay Brinkman, an economist with the MBA. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Low Interest Rates Permeate Economy
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.