Wednesday, September 19, 2007

What's the cost of the interest rate drop to you?

Have you seen the value of your hard earned dollars? I remember as a child traveling to Mexico struggling to figure out how many thousands of pesos I had to get from my pocket to buy ice cream. The U.S. dollar has not collapsed to that degree but its value has declined dramatically in the last five years. An empire can't wage war and spend like a drunken sailor forever. Eventually, the currency suffers. How does this matter to you? Well as a starter, do you buy gas? Two reasons why it's $3 a gallon is rising global demand and the falling dollar. Oil is traded in dollars and the middle east pegs their currency to the green back. They are demanding more dollars because each month because they are worth less relative to other currencies.
In order to protect the dollar the FED would have had to keep rates steady on Tuesday. They chose to bail out speculative investors(hedge funds, investment banks, and leveraged buyout shops) and hope it trickles down to Joe Six Pack. Investors around the world could end up demanding higher interest rates on our government and mortgage debt.
We have seen the rate on the ten treasury and mortgage paper drift higher today. Just one day after the cut. This could result in much higher mortgage rates in the coming years. I believe fixed mortgage rates are a tremendous value and I think people will look back at 6-7% FIXED as the cheap money years. Have you traveled recently and seen the value of your bucks? Has your business been hurt or benefited from a falling dollar? Comment and you may win a free ice cold Sam Adams. Can I pay for it in EUROS?

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