Why Interest Rates May Rise, Regardless of What the Fed Does [View All]

[El Pinko]

http://www.oftwominds.com/blog.html



How the U.S. Could End Up with High Interest Rates

January 16, 2008

Everywhere you turn, the pundits' predictions are unanimously for "much lower interest rates." Aren't you a little skeptical of any "received wisdom" on which the pundits all agree? I certainly am, as history has time and again thumbed its nose at collective certainty by swerving in the exact opposite direction of what was unanimously predicted as a "sure bet."

Low interest rates are supposed to calm the recessionary waters by invigorating the sagging housing market. Sure, lower rates make everything from corporate debt to new auto loans cheaper to service--but the real impact, we're told, will be on housing.

Why? Two reasons. First, the family house is the bedrock of 2/3 of the nation's families' wealth--and the key metric in their perception of overall family wealth (up, down, neutral). Second, the last seven years of "prosperity" have been ones of equity expansion (rising stock market and home equity) and equity extraction (re-financing/equity lines of credit). If lower rates can re-ignite housing sales, the hope is that home prices will at least stabilize or perhaps even start rising again.

Please read the whole article at the link - It's very interesting.