The Fed today cut rates by .75% of 75 basis points in a bid to shore up the economy. No doubt, Bernanke is hoping the cut will drop rates on mortgages, eliminating some of the reset pain, as well as reinvigorate a dying consumer. The problem is, the rates cuts penalize those of us who have been responsible and who have assets in cash or cash equivalent securities.
As rates fall, the rates that banks pay out on savings, cds, and othe cash equivalent securities drops. With the stock market faltering, cash equivalents appear to be the only safe place to stash your money. Rates on these investments have been dropping since the first 50 basis point rate cut in September. After a high of 6% on some savings accounts and short term CDs, you'll be lucky to get over 5% shortly.
It's true that lower rates my help mortgage holders whose mortgages are about to reset. Rates on the 10 year bond have fallen. But once again, its responsible depositors who are subsidizing people who took out risky, and ill-considered mortgages.
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