All the big guys (IMF, etc) all advocate cutting the interest rates to near 0%. However, is that of any use at all when no one seems to be following the interest rates? The US interest rate is now 1%, but all their mortgage rates are above 5.5%, whether is it fixed or ARM! The only thing rate cutes succeed in doing is to stroke up inflation.
This does not resolve the problem at all. The root cause of the problem is more than interest rates. The banks are not even lending out the money because of the lack of trust.
Ironically, I think the only way to resolve this issue is to have something like the Singapore HDB Loan. Government sponsored loans that have reasonable interest rates, with reasonable credit guidelines. The old methods do not work anymore. The evidence is there for all to see, but they refuse to acknowledge it.
Once a new kid on the block start offering rates that are lower than the market rate, the competitors will usually follow. The problem now is that no one is willing to stick their neck out to jump start the economy.
Just because everyone is doing it doesn't mean that it is right. Extreme conditions require extreme measures. People might say the government is stealing the banks business but hey.. They are not lending the money out in the first place. This kind of wait and see attitude is not what we need right now.
Interest rates near 0% but no one will be lending out the money... Did a decade of 0.25% interest rate in Japan help them?
Are those guys up there blind, or so detached from what's happening on the ground?
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