Update: Interest rate lowered .75 to 2.25 percent

Imagine the prime never rising above 3% and 2.5% of that going into the treasury.

Be fiscally responsible, personally.

Stacey, good advice from RobM1981. And that’s not simplistic advice, it’s thorough. For people who didn’t buy more house than they could afford, low-interest loans were/are a great deal. All the houses coming on the market now at lower prices represent an opportunity for those who have been saving a down payment. Buying out the multi-millionaires at Bear Sterns with your tax money is a huge abuse of power in my opinion, but you personally needn’t live in fear. All you young people out there, take some Econ classes for electives. And as your grandmother would have said, save for a rainey day.

Plus, my mortgage rates are variable and it’s nice to see the savings every month : )

StacyH said:
So … are we all going to die?

Because the tone of this thread just makes me want to huddle in my closet and pray the sky doesn’t fall.

I’m not being sarcastic … I have a genuine fear.

Can the US come back from this?

I hear ya, Stacy. I too have a lot of misgivings about a possible recession or downturn in the economy. I don’t own a home (though someday I’d like to), I’m a small time investor, and I’m just trying to save for retirement/rainy day fund to weather this storm. I’d thought I’d seen it all as a military spouse but I guess not.

I think both the federal government and the American citizen in general have too much dependence on debt. Debt fueled this “housing bubble” or whatever you want to call it. People (bankers) who should have known better used the sub-prime loans/debt to package more attractive collateralized debt. Many Americans don’t believe in saving anymore. Nor should they if the Federal government is leading by example.

I’ve seen my mother lose a good job at NCR because of foreign competition. My father was born during the Great Depression. From his parents he learned how to save his money and from him I learned the value of a dollar. I’ve been working since I was 16 and never forgot my father’s experience.

I think that a lot of people (both Wall Street and investors) are panicking and letting it get the better of them. There’s talk of greed, betrayal, and the pointing of fingers which are fueling this emotional maelstrom right now. It’s enough to knot your stomach unless you haven’t already reconciled yourself to the fact that there will always be up and down economic cycles…

History is a wonderful thing; history is a scary thing. It all depends upon your view, and where you think we are going relative to it.

Regulus points to some points in history known as “panics” that were very real, and very painful. The Depression is well documented as being unpleasant for just about everybody. Even so: babies were born, birthdays were celebrated, and life went on.

I don’t think anyone refers to the recession under Ford and Carter as “the good old days.”

With that said, I wouldn’t take counsel from my fears, either.

Be fiscally responsible, personally.

Write your congresspeople and let them know “enough with loosening the money supply.” They can’t fire Bernacke, but they can certainly give him some strongly worded advice.

Live your life. Be in love, if you can. Laugh often.

Economics is the dismal science, for sure… but chocolate goes a long way in countering it.

RIP, Lou; I would’ve loved to hear what you’d be saying right now.

Because the tone of this thread just makes me want to huddle in my closet and pray the sky doesn’t fall.

I’m not being sarcastic … I have a genuine fear.

Can the US come back from this?

Get everyone refinanced into something sane (and if they can’t afford it, oh well, enjoy paying rent!) and then stop fooling with the money supply.

Your trivia info for the day. Yahoo links always have a “;ylt=AnDLoNGcharstring”.

You can shorten the link by breaking it at the semicolon; i.e., truncate the link at the “;ylt=…” and delete that trailing part… and it will still work just fine.

Doesn’t make much difference when you’re embedding a hyperlink obviously, but it helps a lot when you’re just pasting the link itself.

I’m all for a Federal Reserve system, and I am a monetarist by inclination and logic. The founder of Monetarism, Friedman, agrees with your basic precept that the lack of an effective central bank was a key contributor (along with a lack of laws that allowed all kinds of abusive behavior) to the kinds of panics you mention from the 19th century.

But Friedman also was very clear in saying that the money supply should be maintained with a steady hand, changing only when it was truly needed.

We, as a national economy, don’t need more money than we already have in circulation. In fact, we appear to have too much.

Interest rates are extremely low, but borrowing isn’t increasing. Why? Because businesses and individuals have gorged themselves on cheap money for so long that they no longer have an appetite for it.

Compounding this is the fact that a great deal of our economy is based on imports. Our clothing is made overseas. Most of our electronics are made overseas. Our gasoline is mostly imported, and is priced according to global markets.

The non-US companies that make this stuff don’t want any more dollars. They’ve been buying dollars since the 1990’s (and long before that), and they’ve had their fill.

So what happens now?

The Americans who borrowed money for houses that they couldn’t afford have been beaten up pretty badly. They lose.

The people who racked up credit debt (cards and loans), buying vacations that they couldn’t afford, and clothing that they couldn’t afford, and cars that they couldn’t afford? Those people, by and large, win. They keep the goods and the memories, and default on the payments.

The folks who lived within their means, didn’t take the fancy vacation, still watch a 27″ tube TV, but have no credit debt other than a mortgage? They lose. Big time.

Now they get to face $5 and $6/gallon gasoline, and clothing that they can no longer afford, and that plasma TV goes further and further out of reach but that’s OK since they can’t afford the electricity that powers it in any case…

The loans that our idiot politicians required (mortgages) that our foolish bankers make and our imbecile neighbors exploited? The loans were ultimately financed by China, Japan, Qatar, Singapore, etc. They lent the money to the US Government, who funded the loans to the banks (money supply), who funded the conspicuous consumption that has artificially fueled this economy for more than 20 years.

And now we have 20+ years of debt to deal with.

Don’t listen to the anecdotes that our idiotic press will feed you. Yes, there were many people who borrowed just to make ends meet, or pay medical bills. That’s a tragedy. Conversely, there were many people who were too stupid to know that they couldn’t afford the Louis Vuitton bag that they just “had to have.” And, yes, there were plenty of bankers who knew better but did this anyway – and plenty of people who work for banks that are now being blind-sided.

Anecdotes blind us to the reality. The reality lies in the statistics, and they are grim: Three years ago the USA started borrowing, in aggregate, more than we earned.

Our debt, as a nation, is staggering – and our production base has eroded steadily since the 1970’s.

Right now Bush and Bernacke have begun the same solution that Weimar Germany did, and the Pelosi/Reid Congress is behind them 100%: print money. Unlike Germany they aren’t literally running presses but are, instead, “covering” the electronic zeros and ones that represent money in our modern economy.

The net result is the same. If the Fed and the Treasury “cover” losses like Bear Stearns have, they are printing money.

Billions and tens and hundreds of billions of dollars worth, if this doesn’t stop now. They are printing money in the teeth of an already weak dollar, on an economy based largely on importation.

That, my friend, is precisely what Friedman warned against. Better to do nothing than to do the wrong thing.

So, choose your poison: the potential for higher inflation and a weaker dollar vs. the devleoping reality a financial sector meltdown with adverse ripple effects throughout the US and global economies.

It’s one thing to want to see people punished who made bad credit/mortgage/savings decisions; another thing if in one’s zeal to see them suffer, one ignores the consequences on a lot of other people of such schadenfreude.

You are taking a crises management approach. Wait for the crises, then apply the big hammer. How did the banks get the funds to give out so many bad loans? The Feds (along with “liquidity Bush”, Freddie Mac and Fannie Mae) have already failed and now resort to stealing your money by devaluing your savings to make up for their own stupidity (unless you believe it is really a conspiracy).