interest rates

On October 29th, the Fed lowered their target interest rate to 1% in light of the current turmoil and economic recession.

But what doesn’t make sense is that you don’t notice the interest charged on your credit card statement any lower? Why is that?

Well, the Fed uses what is known as a Central Bank of the government to control the nations supply of money (which is how many dollars are in the hands of the people, companies and other countries used to buy things.) And mostly that Central Bank controls the supply of money through the increasing or decreasing of lending to the nations banking institutions (heard of BofA? Wells Fargo? Wamu (Oh wait a minute, they are now JPM, hmmm)?)

Anyways, the Fed lowers interest rates by increasing the amount of loans the give out to the banks and with a larger supply of loans and money, the cost (interest) to the banks go down, i.e., lowering the interest rate. But the reason you don’t see your interest directly impacted, is because banks are getting greedier than they were before. They’ve lost money in the sub-prime fall out. They don’t have that much money in their reserves (which means if all of us went to withdraw our money from the banks, they wouldn’t have enough money to give each and every one of us). So to make back all the losses they continue to charge credit card users and businesses high rates of interest (some even over 35%).

So while the Fed is essentially subsidizing the banks profits, we “the people” aren’t getting very much of the help. So my question to you is, “If the free market ideology got us into this mess in the first place, then how is government policy and regulation, like the Fed lowering interest rates, supposed to help us?”