It was in the 1880s that long-term interest rates hit 3.5 percent, something we may soon see with mortgages.
Mortgage borrowers are now seeing home loans at not much more than 4 percent for 30-year, fixed-rate mortgages. And, reports HSH.com, 15-year loans are already below 4 percent.
The lower rates result in substantially reduced monthly payments. For instance, imagine that you borrow $100,000 over 30 years and the fixed rate is 3.9 percent. Your monthly cost for principal and interest will be $471.67. The same loan at 5 percent would have a cost of $536.82 and at 6 percent the expense would rise to $599.55.
Of course, to get these terrific mortgage rates you need an income, a problem for the 16 million or so people who are unemployed or “marginally attached” to the workforce. And, certainly, no lender will give you a loan if you’ve recently been foreclosed, even if the cause of your financial distress was the lender’s “affordability” loan product that lead to your demise.
Since 2008 the government has done everything possible to save a tottering and tettering financial system, meaning big banks and brokerages on Wall Street. Part of this effort has been to knock down interest rates to levels unseen by any living human being.
For instance, the Federal Reserve has just decided to spend $400 billion to swap three-year Treasury securities for securities with a longer term, from six to 30 years. This maneuver shuffles the financial deck while not creating a single new job.
This has been great for the financial sector, which gleefully charges 29.9 percent for credit card debt while it borrows money through the Fed at near zero percent.
There is now a serious proposal in Washington which would raise taxes on those who have benefited most from society. Some, however, oppose the idea because they feel it’s a form of “class warfare”.
“There’s class warfare, all right,” Warren Buffett told the New York Times, “but it’s my class, the rich class, that’s making war, and we’re winning.”
“This is not class warfare,” says President Obama. “It’s math.”
Meanwhile, major US corporations continue to generate massive profits — and pay little or no taxes.
GE, says the New York Times, “reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States. Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.”
US corporations now have some $1.5 trillion in overseas profits sitting outside our borders. This money could be used to modernize American factories and create millions of jobs but patriotic American companies will not bring the money back to the United States unless their overseas profits are taxed at just 5.25 percent.
There is also much debate regarding the Social Security system, but little has been said about how the Fed’s efforts to help the financial sector have destroyed pensions.
Imagine that you had $2 million in retirement cash and invested it today in five-year CDs. Your likely interest rate would be roughly 1.75 percent or $2,915 a month.
But ask yourself: How many people have $2 million in retirement cash? Or $1 million? $100,000? In fact, the median amount set aside for retirement is just $45,000.
Truth is we all want interest rates that are higher than what we have today. Higher rates suggest the economy has begun to return, capital is more in demand, jobs are being created, homes are selling and savings are producing decent returns — things that help everyone, even folks not on Wall Street.