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the fed is losing its claws

buffet1193
Regular Contributor

the fed is losing its claws

Sadly due to the chaotic state of the world, my fears of higher interest rates on a high-balance home equity line of credit are being laid to rest by recent news.  It appears that the Fed will not be hiking rates for the foreseeable future and there is talk that they may reduce them again.  My loan is at prime - 0.5% (2.99% for a 110K balance-yes I was foolish many years ago) and have been dreading the big payments that are set to hit next April.  I thought about refinancing but my recalcitrant stepmother whose condo is collateral for the loan will not talk to me.  One or both of us will die before the loan is paid, but I will be able to make payments until I expire, provided that my disability benefits are not cut off by the US government-which is always a possibility.  I just got a 0% interest car loan and a 0% interest AMEX card to replace my everday card that I didn't use, so I am set with credit for at least the next year.  I will concentrate on improving my health and settling into my new home in Arizona.  For now, fear of the Fed is taking a back seat to other matters.  Credit card interest rates probably won't move much, either and may go down.With a 16K limit on my 0% interest AMEX (yes, I know they don't like balances) and balance offers on my discover, I don't think I have to worry about matters.  My utilization is near 0 most of the time.  The credit drama just ain't what it used to be.  That's a good thing.  

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4 REPLIES 4
Sandibeach22
Valued Contributor

Re: the fed is losing its claws

I sure hope they stay low.   We're going for a HELOC here shortly.   Need a pool and all that goes with.  Trying to get everything done before the proverbial you know what hits the fan.  Smiley Wink

I don't think Amex doesn't like balances.  They just want to see you pay if off with much more than the minimum.  I have charged furniture on my BCP for over a year now and always had a balance since I keep charging and paying.  They are okay with it and also gave me my second 3Xcli a while back with a balance on my card.  


FICOS: EQ-812 TU-811 EX-818 Goal - 840-850 Across The Board
Total Credit Lines - 506K Gardening....
"I am the master of my fate and the captain of my destiny" Nelson Mandela
Message 2 of 5
RonM21
Valued Contributor

Re: the fed is losing its claws


@Sandibeach22 wrote:

I sure hope they stay low.   We're going for a HELOC here shortly.   Need a pool and all that goes with.  Trying to get everything done before the proverbial you know what hits the fan.  Smiley Wink

I don't think Amex doesn't like balances.  They just want to see you pay if off with much more than the minimum.  I have charged furniture on my BCP for over a year now and always had a balance since I keep charging and paying.  They are okay with it and also gave me my second 3Xcli a while back with a balance on my card.  


+1

                

TCL: $304.1kUtiliz: 3%AAoA: 5yrs 2mOther: Lease, Loan, *No MortgageCollections-Lates-BK's: 0

BoA-55k | DISCOVER-40.6k | PENFED-38.4k | AMEX-37k | NFCU-37k | LOWES-35k | ALLIANT-25k | BARCLAYS-15k | CITI-11.7k | CHASE-10k

Message 3 of 5
pipeguy
Senior Contributor

Re: the fed is losing its claws

It's a long discussion "why" concerning how government tweeks the free market to their advantage as far as economic do or die. I'll stay completely away from the political reasons and associated "bragging rights", but just know that unless inflation goes wild, which it won't because it's a world economy today and Asia, Europe, and somewhat the middle east having to do with oil, but not as much as in the past, and America are all tied at the hip through trade, debt and propping the system up. Africa and South America have a few bright spots, but not many and really don't "cause and effect" the world economy that much (Russia is a whole different  factor/non-factor kind of a wild card).

 

The number 1 reason you won't see interest rates go up like they did during the Carter administtration (15-18% mortgages) is because our national debt today is $19.3 trillion dollars and the interest the government (taxpapers) pay to service the publically owned debt is $235 billion dollars a year. If rates went to a historically moderate 3% the cost of servicing our public debt would be 100% of the discretionary federal budget or about 1 trillion dollars a year (Federal budget is about 4 trillion, 75% is mandatory funding such as Social Security, debt service, pensions, etc. "Discretionary" funding is everything else, like NIH, State Dept, Education, trasportation, Justice, and all the "departments" other than HHS (Social Security, Medicare, Medicaid, Affordable Care Act) which is mostly mandatory, but not all. 

 

Every time the Federal Reserve raises interest rates, the lenders make more money but the borrowers - especially the federal government - PAY more money so it's tight rope between actual fiscal policy, public messaging and killing the golden goose that services $19.3 trillion dollars (the world's biggest high utility maxed our credit card !).

 

Note Mods - this post is 100% meant to be economic cause and effect - not politics, which is a whole different "why factor", but I know the rules and won't go there.

 

 

Message 4 of 5
sandcat
Regular Contributor

Re: the fed is losing its claws

The theory is the fed would increase rates into economic growth that would compensate for it.  That growth just isn't happening.  The sucking sound everyone heard when the rates were raised 25 basis points last December was all the liquidity suddenly being removed out of the markets.  Call it reverse QE. 

 

Granted, much of the reaction was due to fear and loathing on Wall Street but aside from China-like market controls it's just going to happen.  Hedge accordingly, and don't forget precious metals as an insurance policy for large corrections.  Personally, I don't think there's any way out of this scenario without a lot of shared pain and the longer it takes, the more painful it's going to get.   Most humans don't intuitively understand the exponential function, but unfortunately the hockey sticks are all over the darned place. 

 

Or maybe we'll get lucky with the next major technological advancement that makes all of this moot.  One can hope.

In the garden as of 5/5/2018. Growing things until 2020. Or longer.
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