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 ?% growth is fast enough; however, when you slow to 2 ?% 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
http://www.mutualfundmagic.com; 1-888-345-7870
Mercedes Benz s500 rentals Salem ..I am taking the time to help others learn the... Read More
This is the continuing story of our two imaginary traders,... Read More
The single most expensive stock market trades are those made... Read More
A few years back ? it seems like an eternity... Read More
Suppose your position has made a big move and you... Read More
A colleague of mine just returned from a scuba diving... Read More
This article describes the model of a natural relationship between... Read More
Are you one of those many people who dread reading... Read More
If you are fed up with early redemption charges and... Read More
Is really not as important as to how you invest... Read More
Carefully thinking through your goal as a trader is of... Read More
The greatest stock market myth is the idea that investing... Read More
That sounds like good advice doesn't it? Don't lose all... Read More
If you are serious about making and keeping money by... Read More
Why? Because I am going to shatter your conventional wisdom... Read More
The stock market often closes a week in the middle... Read More
Wall Street has been preaching for years and years to... Read More
You probably know the story of Sherlock Holmes and the... Read More
In 1960 an engineer working for a watch company in... Read More
When the stock market is going up and all your... Read More
You probably have been told that options are risky. Even... Read More
Have you ever thought of investing? Do you have a... Read More
Well, not really. What I mean is I don't mind... Read More
You have a lock on your house. You have a... Read More
Very few people, even professionals, have heard of the Dalbar... Read More
Dowagiac cheap limo service ..As an investor you will want to check out any... Read More
The bulls and bears of the stock market are both... Read More
Just about now everyone is confused as to which way... Read More
During the month of January the Dow Jones Industrial Average,... Read More
It is wonderful to be alive in the information age.... Read More
There are many good penny stock investments available, which could... Read More
Where is the beef? Or maybe it should be where... Read More
When it comes to mutual funds, there is a lot... Read More
We've all heard of the stock market and probably have... Read More
Let's assume that you want to make some serious money... Read More
It is commonly reported that the stock market averages about... Read More
Do you have a nest egg? You know, a place... Read More
Are you paying any attention to your retirement savings? Do... Read More
I made my very first investment in the stock market... Read More
We learnt the following the hard way! If any of... Read More
I have a 2-car garage. There are nice shelves on... Read More
We all know the expression, "My country, right or wrong",... Read More
Picking a beaten-down stock requires a different kind of selection... Read More
Starbucks earnings are up again and so is their stock... Read More
As I have said many times before in this column... Read More
Among the largest forces that affect stock prices are inflation,... Read More
When will the stock market stop going down and start... Read More
For the last few weeks we have seen the stock... Read More
There are so many kinds of work that needs to... Read More
I often hear from people, "I don't trade. I invest.... Read More
Stocks & Mutual Fund |