Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – Oct 7th, 2008

FDIC Insured to…$250,000?

Where do I start?  First of all, let’s mention the Financial Rescue Bill that was passed last week.  Some last minute Senate changes enabled some tax cuts to squeak by and continue over the next two years, but all-in-all, it was relatively rushed through the second time around.  One major change that I’m sure a lot of you have been reading about was the increase in FDIC insured protection, from $100,000 to $250,000.  I’m sure a lot of support was received after the first time the bill was submitted – it failed to pass.  After the failed attempt, we had the sharpest one-day decline in the stock market history.

Wow!

I think many Americans woke up and saw their 401(k)’s and retirement accounts depleted so significantly that people that completely opposed the rescue plan, quickly changed their minds in support of the plan after that shake up.  Some reports indicated that many Senators’ offices were being infiltrated with calls and e-mails of which over seventy percent favored passage of the plan.   What needs to be understood is that without the plan, the economy would probably have spiraled out of control and required many businesses to “hold on and hope” that they could survive without getting any credit extended to them whatsoever.  Business needs credit in order to survive.  It keeps the economy moving forward.

Economic Prowess:  Essentially Healthy?

Throughout this report I’ll mention some economic data, however, with so much uncertainty before the passage of the bill, coupled with new plans and strategies being put forth almost on a daily basis, many of the economic reports are having no effect on where interest rates go.  Makes my job here…interesting, to say the least.  Take for example that the initial Jobless Claims number was 497,000, the greatest number in seven years.  Remember when I was talking about 362,000 being recessionary?  Even at that time people were saying that our economy was, “essentially healthy.”  Funny!  The United States lost more jobs in September than in the past five and one half years.  Interestingly enough, though, the unemployment rate stayed at 6.1%.  Generally, interest rates would spiral down on this news, but with all of the uncertainty…they didn’t move at all.

Worldy Overnight Rate Changes

The Federal Reserve and other Central Banks around the world  are all considering lowering each of their over-night rates.  Generally, the lowering of our Fed Funds would be inflationary, however, again…we’re in unchartered territory and if other central banks around the world lower their rates, the value of the dollar would not be affected and rates might benefit from this.  This, too, will be interesting to watch over the course of the year.

$900 Billion Term Auction Facility

So, after the $700 Billion rescue plan was passed by the House and Senate, you’d expect markets to feel more secure and things to move back to a somewhat normal status.  Unfortunately, the opposite occurred.  Global Stock markets plunged as the world felt that bail out wasn’t the fix that they thought it would be.  Germany, Ireland, and Greece immediately started to ease concerns by guaranteeing bank deposits to avoid a world-wide run on deposits.  Then the Fed announced another Term-Auction Facility of $900 Billion and started paying interest on reserves that banks are required to have.  Australia lowered their benchmark overnight rate by a full percentage point and some expert’s think that the Fed might have a surprise lowering of our rate by 50 basis points before the October 29^th meeting.

Is Iceland Ca-Poot?

Iceland was seeking help from Russia for an emergency bailout, and a new Commercial Paper Funding Facility (CPFF) was started by the Fed in order to give businesses uncollateralized loans to be able to continue operating.  Will this be enough to put some confidence back into the market?  I hope I’m here to give that answer next week.  Hey…home values are down and rates are low…go buy, buy, buy!!!  Until next week…

This entry was posted on Tuesday, October 7th, 2008 at 7:27 pm and is filed under Chico Home Loans, Home Buying, Interest Rates, Loan Qualification, Weekly Market Report. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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