Desperate Times Essay

After a series of measures to recreate the owe crisis that has beset the US economy, Ben Bernanke, hot seat of the Board of G all overnors of the plyeral restrain and his colleagues atomic number 18 once once again looking at press clippingting the central banks notice bet rate as they hope that cut downing the interest evaluate provide give the economy a boost by encouraging investors and consumers to borrow and spend (Associated Press, n. pag.). The federal official is looking at slashing the interest rate by a full percent provided, some economist believe that this is non the give up remedy for economic conundrum (Gavin, n. pag). harmonize to many analysts, the issue of the economy regarding the mortgage is the lack of confidence by some(prenominal) the lender and the borrower. Even as the cater resorts to drastic interest cuts, the first epoch the central bank has cut a full percentage point in one shot since 1982, this provides little abet if lenders be n on loaning bills out of fear they will not be repaid and the borrowers ar reluctant to induct loans since they atomic number 18 worried about losing jobs (Gavin, n. pag). In a recent report by the Labor Department, private employers all over the country have cut jobs in each of the past three months. With consumer disbursement being responsible for over two-thirds of US economic activity, it is unlikely that the interest cut will have a operative effect in the economy (Gavin, n. pag). The federal official Reserves move to lower the interest rate aims to stimulate a loan frenzy. By lowering the interest rate, mortgages will be made available to borrowers at more affordable rates. The supply hopes that the American consumers will once again be enticed to take mortgages and ultimately be able to revive the economy. However, this move is quite an a long shot. First, the Fed is banking on the idea that a choose for mortgages will increase if the interest rates are cut. Althoug h this is what a change in demand means in elementary economics, it seems, however that the Fed failed to factor in the social movement of the US housing market. According to reports the sign of the zodiac prices are continuously plunging while the cases of mortgage defaults and foreclosures are increasing. These causes the investors and more importantly the lenders to lack confidence in the economy (Gavin, n. pag). Second, this is not the first time the Fed move the interest rate. Since last September, the Federal Reserve has cut the interest rate for a total of six times, with the reductions becoming more aggressive since January (Associated Press, n. pag.) and this raises a valid concern. Although the Fed has its own army of experts, this interest-slashing spree expertness reach the point of diminishing returns if the consumers do not respond favorably to these drastic measures. Last, the Federal Reserve is not authentically addressing the issue of confidence by savage th e interest rates. One of the biggest reasons why the consumers are reluctant in acquiring mortgages is the fact that private corporations nationwide are practicing capacious lay-offs. Lenders on the other hand are gripped by distrust as the business organization is beset with bad debts (Gavin, n. pag). In twain cases, this breeds an atmosphere of fear and doubt which affects the borrowers likelihood of acquiring mortgages and the lenders willingness to approve loans out of fear they will not be repaid. Personally, the Fed would have been better off if it had interpreted measures that would have addressed the issue of employment and bad debt.Works CitedAssociated Press. Fed cuts key rates three-quarters of a point. March 18, 2008. The msnbc website. 27 March 2008. Gavin, Robert. Economic quicksand. March 18, 2008. The capital of Massachusetts Globe website. 27 March 2008.