I'm sure the world has no doubt heard that America is now a nation of poor folk.
Okay, that's not necessarily accurate, but from what a lot of people are saying, you'd probably think that we're all going to end up running on the banks any day now. For folks who failed high school economics, let me explain:
Each nation's economy, by nature, is cyclical. Gains and losses in wealth cause greater changes on larger scales, meaning that as the working class increases their wealth or increases their education the working class will shrink, we will have fewer members of a labor force to produce domestic goods, our economy will shift to a more service oriented economy rather than a commodity or material economy, our imports will grow, exports will shrink and more people will seek assets, like homes.
Now, as more people seek homes, banks and lending institutions will find a way to make the greatest profit on this new trend, so they will offer financing to people that in the previous economic conditions would not have received a loan. To weight their risk in the equation, higher interest rates are charged on the amount of the loan. This is pretty standard practice. It gets tricky when banks get greedy. Because the economy just shifted over a period of years, banks look to the Fed as a kind of weathervane. As the Fed increases the rate at which it will lend money to banks, banks will then pass that cost on to those people who took on loans with Adjustable rates, or sub-prime loans that banks invented to maximize profits.
What happens, though, when the Fed increases the rate and the banks pass on that increase and the sub-prime borrowers can't pay? If there are too many sub-prime mortgages in the market, there is a crash. You see, banks want their cake, ice cream, and a decent offshore account in the Bahamas and they want to eat it, too. They don't make money off of a foreclosed home, so keeping these folks paying on their house is in their own best interest. But as mortgagors can't pay and banks can't pay on the investments they've received from central banks, well... you get into the recession we now have.
Incidentally, in order to minimize the impact of the recession, the Fed has decreased the rate at which it will lend money to banks by, in analytical terms, a whole fucking lot. Meaning that money is cheap right now. Meaning that the value of the dollar is lower. Meaning that traveling abroad and buying imports is ridiculously expensive. Meaning that the service economy we were building will have to transition into creating different kinds of domestic goods and services in order to manage the weakening value of the dollar.
It's just one big cycle.
But if you're in the market for a loan, for home improvement and refinancing, now is a good time to borrow because banks want to give you money to make money off of you in interest.
So, we're going to pay the banks to remodel our kitchen. I'm thinking bamboo cabinet veneers, marmoleum floors, recycled glass mosaic tile backsplash, corian countertop, farm sink and a new custom island.