CLARKONOMICS: Today’s show has an uncomfortable feeling much like three years ago with all the special shows I did, day in and day out, each time as another shoe dropped in the U.S. or world markets.
We just had the Federal Reserve announcing its worry about economic growth and its intent to keep interest rates near zero. The Fed also said it doesn’t fear inflation, so the markets have moved and interest rates on U.S. Treasury notes — the very debt that Standard & Poor’s downgraded — are now at all-time record lows.
I’m looking right now (3 p.m. ET) and the 10-year Treasury note is trading at 2.16%. That’s an incredible low for that particular note, which is directly tied to mortgage rates. So the segment of the American people who are in a position to get a mortgage or a refinance are going to find record low interest rates over the next week or so.
I read a story today that said mortgage brokers can’t keep up with the sudden instant demand that has materialized. Leading up to the Aug. 2 debt ceiling deadline, you had experts predicting interest rates would rise. But the U.S. is such a big player and people have to put their money to work somewhere. Not everybody can put it into Swiss francs because the country is too small and can’t print up enough francs.
So we are still, despite the debt downgrade, the best spot in the world to put money into a safe harbor. People overseas will be forced to go into our federal obligations because there’s really no other place to go.
For you in your everyday life, this means great interest rates on car loans, mortgages and refis and even home equity lines of credit (HELOC). The one exception where the interest rate won’t be good is likely to be credit cards, which have a profit margin of between 15%-17% for the controlling bank.
The markets are terrified right now about whether Bank of America can survive without another federal bailout. Their shares have been plummeting and there’s concern about how they will recapitalize.
Know this: The easiest way for Bank of America to get money is for them to abuse their customers with more fees. Loyalty will be punished, not rewarded. I would love for you to look at banking elsewhere, particularly at a credit union.