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Rate Cuts Still Not Helping
-- November 28, 2001
The Federal Reserve has all but admitted that its 10 rate cuts over the past 11 months have not revived the economy. In fact, the Fed said its "beige book" revealed that, despite some of the lowest interest rates in history, banks are issuing fewer loans.
That's because Corporate America and John Q. Public are up to their eyeballs in debt already! Corporations can't afford to go deeper into debt while their sales and earnings are virtually non-existent. Americans -- who currently owe a collective $7 trillion in credit card debt, mortgages, auto loans, and more -- aren't in a position to take out new loans, especially when they are worried about job security.
And even if they want to borrow more, the beige book revealed that banks are tightening their credit standards for lending. Banks are already hurting from the slew of bad loans they made during the past decade of supposedly "never-ending" growth. And with bankruptcy filings on a record pace, according to the American Bankruptcy Institute, banks are trying to guard against future loan delinquencies.
Clearly, the economy is not showing any signs of climbing out of its current recession. And it's doubtful that further rate cuts will help.
Fed: Economy Stayed Soft Oct., Early Nov