Fed to cut interest rates

[96-eclipse-gst]

Sounds like Ben Bernanke is going to cut our interest rates again. Anywhere from 1/4 to 1/2 percent. Unemployment is up to 5%. To me, it just seems like we are heading towards a recession. Hopefully not. What are your thoughts?

[ZacFields]

Yeah the Fed has been cutting those rates for a while now, and as far as I'm concerned: hooray. Lower rates on my student loans :)

I don't know if we're going to go into recession or not. Some people believe we already are there, but I blame that on the "the sky is falling" chicken little theory. People always want to be pessimistic and panic about things.

Personally, I'm not concerned about a recession for a few reasons:

1. The fed rate is 4.25% currently, which gives it quite a ways to go down. The lower that rate is, the less interest gets charged to your credit cards, student loans, etc. If it gets down to 3% or cheaper, I may even refinance my house to get a lower rate and save myself $100/month or so. Once it gets low enough for people to be able to benefit, it will help greatly, and like I said it's got a ways to go.

2. This is election year. There are usually mixed results when there is a change of president, but I have a feeling when Bush is replaced, the economy is going to see a big surge.

In addition, most of the new presidential candidates have one thing in common : "Get out of Iraq" one way or another. And anyone who has taken an economics course knows that after a major war is ended, the economy takes a big surge afterwards.

Either way, if you don't lose your job because your company goes bankrupt, a recession can ultimately mean prosperous times for you. You'll enjoy lower percentage on your credit cards, school loans, and mortgages, thus equalling more money in your pocket, and they usually try to give you more money in your tax refund :)

Zac

[slobalt]

While Zac has listed the good here are the bad.

The only problem with cutting the rate is how it weakens the dollar. Last year foriegn stocks faired much better than US. Canada's dollar is now worth just as much or more than the US dollar. When was the last time that happened?

The cost of imported goods will be more expensive and since the US imports more than it exports we're gonna feel that.

The interest rates on savings accounts and CDs will fall, so those families trying to save money by being safe won't be able to make much money for their investment.

Banks who are currently in trouble because of this credit fiasco are gonna have a harder time making money because as the rates go down so does some of their profit. Bank stocks have tanked in the last year this won't help.

Cutting rates are fine, but there are other problems that needed fixing before cutting rates. It'll be good for some and bad for most.......

[ZacFields]

The good part about the weakening dollar is that it increases our exports to our imports ratio because our goods become cheaper overseas than they were before, and also helps push people in America to buy American-Made goods because they will be cheaper than imported goods.

I'm not sure how much savings rates will be effected. If you're looking to save at the highest rate, you may just have to shop around. My e-trade savings account has actually risen from 4.70% up to 5.05% in the time that the fed rate has been cut an entire percentage point. Online savings accounts are becoming a lot more competitive these days. I'm sure the percentage will eventually go down, but I bet I can find no less than 4.5% by doing a little shopping around if need-be.

The people that would be most effected by a theoretical recession (I'm still not buying into the chicken little theory about how we're about to go into recession) would be people with 401k's, people owning stocks, etc. The biggest problem with a recession is that stocks tend to decline and if your money is in the market, it will start to dwindle away.

I'm really not concerned about it, honestly. Other than my 401k I don't have any money in stocks right now, just been sacking it all away into savings. I'll just wait this one out and then get my money back into stocks when I feel that they've hit rock bottom or close to it.

There's good and bad to everything. I do disagree that the majority of people on this board would be effected by a recession. I think at the age of most of the members here, a recession is of very little concern. Most of these guys don't have money in stocks, most don't have 401k's, and most aren't in the market for a brand new foreign model vehicle in the near future or any other expensive imported good. Actually, most probably don't keep a lot of money in savings, either. lol.

Like I said, if we have a problem, it will be very temporary. There are some big things going to happen to America in the short-term future that should turn things around very nicely.

Zac

[96-eclipse-gst]

I certainly hope your beliefs are correct, Zac. My job sucks right now, my fiancee has money in savings and also in the stocks....We were looking to buy a new honda accord or toyota camry. Too bad im not in a position to buy a house. Maybe if I find one that has been foreclosed. Ehh what can we do but press on.

[slobalt]

A recession simply put is a decrease in spending.

You said your putting money away, I'm assuming your not spending money needlessly, that you've decreased your spending. Me too. We're helping to contribute to a recession. Are there any other people out there doing the same thing? Who buys more than just the necessities these days anyway?

Where I work the company doesn't spend any money on new equipment, or to upgrade the work areas. I bet companies all over are cutting back their spending to show a better bottom line for the investors. Retailers are projecting smaller earnings because people are not spending money. Our own GDP has gone down from it's peak back in 04 or 05 I can't remember. This means the value of our services and products is not what it used to be. My theory is because nobody is buying. Somewhere people are decreasing their spending.

Aww to be young and optimistic again.........Now I'm just old and bitter. Your right though, the sky is not falling it's just raining and when the rain is over the sun will shine. Those who are not swept away by the water will be just fine............

hey that last part almost rhymes.....

[ZacFields]

LoL you're exactly right Slobalt. I'm one of those young optimistic types.

That's the good thing about being young, though. When you're 22 (my age) you know you'll outlive any economic setback or recession. It's almost exciting, even, because if you study finance you know that recession is usually followed by a period of good prosperity. If you are able to time it just right and get your money into the market at the right time during the end of a recession, you stand to make a good chunk of money over the next 5 years or so.

You're right about my spending, though. After Ashley and I moved into this condo, we spent loads and loads of money filling it with everything we ever wanted. We've got nice furniture, nice TV's... well you guys have seen all my updates every time I do something to my home. Unfortunately, I bought most of that stuff on credit, so now I'm paying it all off and I've decreased my spending by probably $1,000/month or so. Heh, for a finance major, I did not live very smart when I moved out. It wasn't a mistake... just a lesson learned :)

I rarely show democratic beliefs, but in this instance I do. I think our economic downfall is the fact that CEO's often make several million dollars per year when their workers are making $40,000-$50,000 per year. Who's going to contribute to the economy more, one CEO making $5 million per year, or 2,000 employees that get a $1,250 Christmas bonus every year because they cut the CEO's salary in half?

There's a growing problem in the US that you will have an extremely hard time supporting a family on a single income unless you've got a college education. It wasn't always like that. When our parents were young and when our grandparents were young, not a lot of women ever worked at all, and it wasn't a problem.

Through my experience (and someone please correct me if I'm wrong because it would make me feel better) in the Cedar Rapids area, you need a household income of at least $50,000 to be "comfortable" with your finances. After I got my promotion, between Ashley and I we make about $58,000 together (Yes I'm not one of those shy people with my finances) and if we didn't have to pay $500/month in debt payments, that would be a good chunk of change, but we were smart and chose a very affordable home on the incomes we were making last year before I got promoted and while she wasn't even really working quite full time, and we have no car payments.

On our income, factoring in $500/month for Debt payments, $159/month motorcycle payment, $618/month mortgage, $100/month cell phone, and all the rest of our little bills like utilities, internet, groceries, miscellaneous spending, etc etc, my budget has us saving between $900 and $1,100 monthly depending on how expensive our utilities are. Probably seems like a lot, but gotta remember we have no car payments right now and we have no children. If we had kids, that number would get a lot smaller.

So it's a good thing we're going to school and it's a good thing that we're okay with the dual-income thing because it just seems like that's what you need anymore, and I think that's our economic downfall. People protect their money a lot more than they used to because usually it takes both husband and wife to make enough of it to be "comfortable."

Zac

[ZEE]

LoL you're exactly right Slobalt. I'm one of those young optimistic types.



Through my experience (and someone please correct me if I'm wrong because it would make me feel better) in the Cedar Rapids area, you need a household income of at least $50,000 to be "comfortable" with your finances.

Zac

Not necessarily. The more you make the higher your bills become. Bigger house payments. Higher utilities bills to go with the bigger house. More and higher car payments. You get the idea. Your in a higher income level but you still have the same money issues.

[ZacFields]

Yeah, part of it is that I own a home and have to pay all my utilities. Nearly 100% of my debt exists because I bought so much stuff for this house. My dad always said that if you're not careful, no amount of money will ever be enough. That's why I've sworn off consumer debt. I'm paying off the debt that I have and then I will pay cash for everything else I ever buy with the exception of big ticket items like cars. If I can't pay cash for something, then I need to wait until I have the money saved up because I can't afford it.

There's a lot of people that make household incomes of $70,000 or $80,000 per year that still have money problems. That seems nuts to me, but I understand how it can happen. You can buy a house that's too expensive, and buy cars that are too expensive. With car payments, people forget that 3-5 years (length of most car payments) is actually a pretty long time to be paying $600-$700 per month for a high priced car. Financially, a lot can happen in 3-5 years that can make you wish you didn't have such an expensive car payment. The amount of money you pay for a car payment is definitely a gamble that you have to accept when you choose to buy an expensive car.

I just said $50,000 because based on my mortgage bill and the fact that I'll be needing a new car within a year or two it seems like that would be a pretty good benchmark that you would want to shoot for.

Too bad I can't find a job that makes $50,000 all by itself. Takes 2 of us to make $58,000. :) Shouldn't be quite as hard when I'm done with my bachelors but it ain't gunna happen right now

[96-eclipse-gst]

I know exactly how you feel about buying things for your home. When Jenn and I moved in to our apartment. We needed a tv, furniture, dishware, you name it, we needed it. So we spent a ton of money on things. However, Jenn did have a lot of money put away that she paid for most things. We really only used credit on the furniture and the tv. # years no interest no payments to pay $1000 on a tv becuz we paid half cash on it. Not too bad. The furniture we just found out is 12 months no interest instead of 6 months. How kick ass! But things have happened to hurt us. Jenn got really sick and we found out she had a really bad infection in one of her teeth. So she needed a root canal. ($700) I just had to rebuild my motor which cost me a good $600 or so. We aren't in a pickle entirely. She still has quite a few thousand dollars tucked away in stocks.

She's still making the same pay checks she has always been and will be getting a raise in a few months. I however, hours are cut in half, Im making half or even 1/3 of the commission I was. All because its that time of year where people do not spend money what so ever. Most people have tons of money racked up on their credit cards. Its ok, I'm still getting by but now I am keeping my eyes glued to the classifieds and seriously listening to people who offer me jobs.

[ZacFields]

Andrew,

Just make sure to keep your costs down. The less that you have to dig into savings to pay bills, the better. Ideally you want to get into a situation where you can add a little bit to savings every month.

Finding a new job will depend on how much you like your current job. You could always just pick up another part-time job to make up for the time that you are missing this winter. When you work in a job where they cut your hours, it's usually a good idea to have a little part time job on the side that you can add hours to when times are tough.

I don't know how you feel about call-center work. Where I work they start you out at $10.00/hr for the day shift and $10.50/hour for the evening shift. They would hire you for as little as 8 scheduled hours per week (if you put me down as a reference) and you could just work extra whenever you want. We have busy days sometimes, we would call you up and you could come in and work 5 hours....easy 50 bucks. If you can type 60 words per minute it could be worth a shot. It's NOT tele-marketing, lol. I would never work in a place like that.

If you're interested let me know. It's no biggie...call center jobs aren't for everyone. I've enjoyed it there and I'm getting good management experience while I'm getting through college.

A recession could be good for your work, Andrew. Theoretically (and i am talking out of my ass right now) if imports get too much more expensive, nobody will be able to afford them and they'll just drive their current cars til they die and then they'll bring them to you to fix it!

Once it starts to warm up we'll have to talk about doing those struts for Ashley's car. We hardly drive it anymore though because now she works with me so we carpool to work in my car :)

[96-eclipse-gst]

Yea I pulled those struts out of my backseat the other day I finished my car lol. I also did notice an ad in the paper from where you work. Its definately something I could do. I have call center experience, I just hated having to call people and ask for money for charity. The management there was completely strict and rediculous in every way. (Plus they didnt pay anywhere near $10.50 an hour) Ive also been asked by O'reillys and a few auto parts stores to work for them but I'm not sure what I will do. I don't hate my job, but it gets to be a challenge for me to WANT to get up and go to work with some of my coworkers. I will definitely keep that thought open though.

Oh yea, we have been able to put some money away each month. So that helps...