I am no economist (as anyone who reads this site can attest to), but I have come up with a solution I think will fix the economy the minute it gets implemented. My plan involves the interest rate we pay on any money we borrow and how much interest we earn on any money we save. While current average interest rates, for anything from car loans to mortgages run between 0% and 5.5%, my plan is this: reduce the interest charged on every loan other than mortgages to just 2%. That’s car loans, student loans, payment plans, credit cards, everything. All the talking heads want people to shop, consume, and prop up the economy, so there you go – reduce the interest rate on everything other than mortgages to just 2%. Surely, people would start financing and borrowing money to buy almost everything you can imagine. Voila – the talking head’s wet dream – consumers who are back to consuming!
See, here’s the thing…
I currently earn a whopping 1.30% interest on the cash I hold over at ING Direct. It’s not that I am necessarily upset about this low rate, as every bank is around the same or less right now. But if I am only making 1.30% on my money that the banks are lending out (and most banks pay less), shouldn’t interest rates be lower than they are? I mean, if I am not making anything on my money, then maybe the banks shouldn’t be making much more on my money either. By giving a loan on a car for, say, 5% interest, they are making a 3.7% profit on my money – more than enough, in my book. Especially when the banks and Wall Street are the ones who brought us down into this mess in the first place.
But by lowering the interest rate on any kind of debt (other than mortgages) to just 2%, a few things would happen:
– People would borrow more
– There would be less bankruptcy filings due to payments being lower
– Families would have more cash to spend on even more stuff other than debt
– Banks would still make money, but not have the ability to hand out multi-million dollar bonuses to workers who screwed the system up
– Our economy would start to rebound almost instantly with all the consuming going on
After all, the financial system of the U.S. is based solely on consumption – we barely even make any of our own products anymore. So, lower the interest rates to all time standardized lows for all, and watch the economy recover almost instantly!
Yes, this is sarcasm. Or is it?