The Chinese government, the biggest buyer of U.S. debt, expressed concern about American deficits and its impact on U.S. Treasury obligations – a budget that will raise the national deficit to nearly $2 trillion dollars. That’s $2,000,000,000,000.
Bernanke views this intervention strategy as critical and necessary to avert a deeper downturn. But as you know, spending money you don’t have can come with it some dire consequences.
This economic jump start strategy of spending America out of this downturn will need to be repaid one day, hopefully from economic growth and fiscal restraint. But deficits generally spawn higher inflation, higher interest rates and a weaker economy.
Posted in Industry, Interest Rates, Savings
Tagged bernanke, budget, chairman, china, Debt, deficit, economy, fed, federal reserve, government, inflation, interest rate, treasury
The Center for Responsible Lending released The Real Cost of Credit Card Cash Advances
Apparently only 3% of consumers understand the differences among introductory teaser rates and rates on purchases and on cash advances.
During this current recession the spread between prime rate (4%) and APRs (28%) is an astonishing 24%. This means that the cost of capital is 24% higher than the lending rate. Compared to the prior 4 recessions, this spread continues to widen, from just over 8% in the early eighties and 10% in the early nineties.
American Express has announced that they will start squeezing more interest charges and fees out of some cardholders next month, raising rates by as much as three percentage points.
American Express also plans to increase the conversion rate for charges made in foreign currencies by one percentage point. Look for more credit card issuers to follow the re-pricing trend over the next three months. Remember to check your credit card statements for changes to your credit limit.
Citibank is planning to raise interest rates by at least three percentage points for about 20% of its U.S. card accounts.
Prime Rate in the U.S. was recently cut to a four year low of 4.0%. The last time prime hovered at these levels was between July 2003 and July 2004. However, on a comparative basis, average offered credit card interest rates are more than 21% higher than they were back then. How then is this justified?
Likely the banks established floor rates with new credit cards issued during the interim period when prime rates were significantly higher.
As a result, during the past 12 months prime rate dropped from 7.75% to 4.50% or 325 basis points, while average offered credit card interest rates have dropped only 160 basis points.
This got me thinking… where else have I noticed a similar trend. Where consumer prices rose exponentially relative to commodity prices, however once the commodity prices began to fall, the decrease in consumer prices were less than commensurate. The answer, of course is gas.
Looking at average gasoline pump prices against the per barrel cost of crude oil since the commodity started declining, you will notice that consumer gasoline pricing has remained relatively flat versus a commodity price that has plunged over 30% recently.