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US Interest Rate Policy Commentary

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Written by: Dolores Hark
Date posted: 16 February 2008

You could say that the entirety of my adult life has been spent in a serious of economic booms and busts, like many of my GenX peers.

When I graduated high school, the economy wasn’t so great – 1986. When I graduated from undergrad in Dec 89 – the economy wasn’t so great and I decided to pursue a graduate degree (a good decision economically? another whole topic for another day).

I think the job market began to recover in the mid-1990s, but that was when I moved overseas to Bangkok, Thailand.

So I had the pleasure of participating in the last few years of the export boom and the subsequent devaluation of the Thai Baht and the contagion thus set off from there. Another side result was the crash of the Thai real estate market, which had bloated with speculative investment.

As a direct result of the Asian currency crisis, I had to relocate back to the US because I was holding dollar-denominated student loans that I needed to be able to pay. Many other foreigners left at that time for similar reasons – need to service foreign debt, but being paid in local currency.

Back in the US in 1997 and working in the Internet sector by 1998, I experienced first hand the tech boom and crash.

So you could imagine I had a complete adverse reaction when the interest rates were suppressed post-Internet crash to help push investment in the real estate market – or if the intent was to intentionally ‘push’ that market – I was upset that the interest rates were suppressed such that the dollar, clearly already in a precarious position, would suffer.

And the final blow – the presidential adminstration’s policy of imperial overstretch – the death knell to an economy living on borrowed time, so to speak, because the dollar was the key international currency.

How painful to have to watch all this in slow motion over the past few years, especially the fiasco revolving around variable rate real estate loans in the retail sector.

Now I am contrarion with the current policy of continuing to lower key interest rates. This will just sustain this mess longer and continue to weaken the dollar, and we are punishing savers. Because with inflation as such and interest rates as such, borrowing is still more attractive than saving in this economic environment. May as well grab that 200K now if you can because it might only be 150K in 2-3 years in real terms – what a great deal baby! (These later numbers are just off the top of my head and should not be used in making any sort of investment decision whatsoever.)


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Living Frugally, with Purpose and Style: The New Conserver

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Living Frugally, with Purpose and Style: The New Conserver

Living Frugally, with Purpose and Style: the New Conserver

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Living Frugally, with Purpose and Style: The New Conserver

Living Frugally, with Purpose and Style: the New Conserver

Living Frugally, with Purpose and Style: The New Conserver

Living Frugally, with Purpose and Style: the New Conserver