Rate Cuts

[NitroZ7]

I watched a few very interesting shows on the effect or non effect of future rate cuts. Normally debt would have been reduced during growth periods but rates were kept low for longer and we ended up having households and corporations piling on more debt to take advantage of lower interest rates. The money they borrowed was not necessarily used for investment so they are not earning more money on what they borrowed. As a result they are highly leveraged so the argument goes that even with lower interest rates they will not borrow more because they are maxed out. Whether this is true or not remains to be seen but if you want to watch something interesting then get on YouTube and watch How Debt Zombies Will Cause a Credit Crisis. The guy pretty much nailed it. His solution is probably not politically practical in America but there is some credence in what he is saying.

[dvl2700]

Yes, IMO companies have maxed out their borrowing. Some have repurchased stocks with the money they borrowed, thus causing their stock prices to increase. According to some experts, the primary increase in the stock market is only because of these share repurchases, not organic growth of the companies.
I fear when things de-leverage, we are going to be in a severe recessionary environment.
Of course, others say we are still in a growth environment with lower taxes, eliminating some restrictions and regulations, and the current priming by printing more money.
dvl2700

[Bassin08]

For seniors who are sitting in safer CD’s, the lowering in rates is not allowing them to keep up with inflation.

[NitroZ7]

For seniors who are sitting in safer CD’s, the lowering in rates is not allowing them to keep up with inflation.

yep and it will push many into riskier assets to generate income. Between a rock and a hard place. I watched an interview of a retired couple in Germany having the same issue and they were dealing with negative interest rates. Very scary stuff.

[Bassin08]

I’m not concerned with the income, just the growth, or lack there of.