oops, guess that poll question range was too wide, not specific enough

[netmouse]

For those who answered (some form of) Yes, a certain loan interest rate seems excessively high, the majority responded that "too high " starts between 5 and 25 %, and I'd like to see a breakdown on that. Please answer this question too!

[Poll #1343223]

Comments

[netmouse.livejournal.com]

Clearly the assumption of this poll is that we're talking about a moderately stable currency, such as US or Canadian $.

Inflation is a difficult thing to gauge. Who do you trust to define it and thus tell you what "real" interest is?

[gerisullivan.livejournal.com]

Even in a stable economy such as ours, the 15-18% interest rates that credit card companies were charging when mortgage rates were 10-12% were reasonable, while charging the same rates when the mortgage rate is 5-6% is not.

(I'm not as familiar with exactly where "Prime" has been in the last decade or so, but to my eye, both "high" rates and "usery" can be best measured as how far above "prime" the interest rates are.

[netmouse.livejournal.com]

According to Moneycafe.com, the prime interest rate (http://www.moneycafe.com/library/primerate.htm) has been between 3 and 10% in the past decade. Right now it's at 3.25%.

I personally never thought a mortgage rate of 12% was reasonable (if it's a moderate or low-risk mortgage, secured by a house whose value (at onset) is more than the value of the loan). Unsecured consumer credit, sure. Mortgage? no. But I might have fiscally conservative opinions about trying to curb inflation as well.

[gerisullivan.livejournal.com]

If prime is at 10%, why is a mortgage rate of 12% unreasonable? The Moneycafe chart shows that prime spiked just over 20% several times in the early 1980s. Ye, ghads.

Thanks for the link to the chart; it's interesting to compare it to the smaller swings in rates available to me during that same time period.

[grndexter.livejournal.com]

With a prime of 10% a 12% mortgage would only allow the banks a 5% "spread" - very low. Out of that 5% would have to come operating costs, taxes, payrolls, etc.

The high interest rates in the '80s were from the Ford/Carter years when Chairman of the Fed Alan Volker was fighting Stagflation by raising interest rates to stabilize the dollar and defeat inflation. (Which is what we need now!)

Voler's action went against almost all contemporary theories and thought about what was needed but was correct and stabilized the dollar's value and I believe made the economic boom of the Reagan years possible. (Reganomics? Pthbbbbbpthb! It was sound monetary policy.)

Bungling Ben Bernancke is doing the things that the nay-sayers wanted back then, and they're as wrong now as they were then.

[sethb.livejournal.com]

A 5% spread is low? The current average mortgage rate (for new mortgages) is under 5%.

[grndexter.livejournal.com]

Uh huh. And how many "points" are being added up front? And mortgage "fees" and brokerage "fees" and are those low rates teasers or fixed or short term or long term or ARMS. Lottsa variables in there. Just because an ADVERTISED rate is one thing, that doesn't make it the ACTUAL (real world) rate. With a Fed funds rate of .25 (+/-), a spread of less than 5% is LOW! (Which is why my minimum ARM rate is 6%)

If PAUL (Not "Allen" DOH!) Volker gets an audience, or if he's not too senile to realize we're having Stagflation not a "liquidity crisis", then those rates can go up plenty and fast!

[sethb.livejournal.com]

Statistics on these things are published. Currently, 5.1% (with 0.7 points+fees) for a 30-year fixed, 4.8% (with 0.7 points+fees) for a 15-year fixed. Two weeks ago, they were both under 5%.

[grndexter.livejournal.com]

FYI - (for those who don't know)

Today's WSJ says prime is 3.25%.

The "prime" interest rate is the rate set by banks. It is usually set at 3% over the Federal Funds rate (but can be higher or lower) When you hear about "the Fed" raising or lowering rates, it's the Fed Funds Rate they're talking about. Then the banks decide where to put Prime. Most banks and credit cards and such use the "prime" as their benchmark to adjust rates for borrowers. For example, my ARM mortgage is readjusted every April 1 to "Prime plus .75% with a minimum of 6% and a max of 16% and a maximum swing of 2% per year."

The inflation numbers put out by the US Government are DOMESTIC ONLY - which means that the Nov '08 CPI was minus 1 (deflation), but for total inflation you must also consider the movement of the dollar against world currencies.

For the bulk of the Bush administration, the domestic US inflation rate was below 5% (usually 2% to 4% or around there) HOWEVER the US Dollar fell against world currencies by over 50% in those same years (40% just from 2000 to 2007, an indication that the decline in the value of the dollar is accelerating).

A 50% drop in the value of the dollar over 8 years gives you an inflation rate of 6.25% per year minimum - not counting domestic inflation. (The domestic inflation rate is based on the cost of a "market basket of goods" in the US and is not connected to the value of the dollar in international markets.)

[dagibbs.livejournal.com]

In the 1981-1982 time period, Bank of Canada rates peaked over 20%. (http://www.bcrealtor.com/d_bkcan.htm) That's what the central bank lends at -- retail rates, even for the best customers, are going to be higher than that.

I think the USA prime rate also peaked over 20% during that period. (http://research.stlouisfed.org/fred2/data/PRIME.txt)


Context still matters.

[netmouse.livejournal.com]

Retail rates are only necessarily going to be higher than that for institutions who borrow money from the Bank of Canada (or the US fed bank and, yes, we also peaked high in those years). There's nothing stopping independent people or institutions from undercutting the lending market. (If the prime lending rates get high, though, people start to get scared of losing money due to rampant inflation)

Are you saying you don't care how high the interest rate is if it's the government bank charging it? Ir just that you're trying to recognize that all financial institutions tend to operate off the prime rate?

[dagibbs.livejournal.com]

I think that it would be hard to see the "benchmark" rate as usury, and that usury probably has to be defined relative to that benchmark. I have a certain trust that the "benchmark" is not wildly off the mark, but that may not always be the case -- I will hope it is the case in honest, relatively open, stable economies.

And, the benchmark is (supposed to be) high because inflation is high... and again, it comes back to defining against inflation.

And, yes... who measures it? Ok, the difference between 2.5% and 3.7% -- might be tricky, and have to trust. But the difference between 2% and 20% -- that's going to be noticeable to everyone who buys stuff.

[grndexter.livejournal.com]

ROTFLMBO!!!

Did you just use the words "stable currency" in conjunction with the US Dollar? STOP IT ! YOU'RE KILLING ME HERE!!! LOLOLOLOLOLOL!!!

[nicegeek.livejournal.com]

I believe she said "moderately stable", and was speaking in the context of comparison with the Zimbabwe dollar. And she's completely right; that's why most national governments keep the majority of their reserves in dollars.