Archive for April, 2012
Talking about interest rates, and really credit in general, is for most, about as fun as watching the dogs fur grow. In this instants, meaning the times we are in: interest rates, lending and credit are very relevant for everyone to be more familiar with. The longer one distracts himself from these less entertaining news items the deeper and more personal one’s life will probably be effected.
Besides people looking to renew or shop a mortgage why does it really matter, and the short answer is: it does, it really does. Following interest rates and other economic indicatores to have a general understanding of what is going on can help you become directonally right in your personal finanacial decisions and actions.
One concept is easy to understand and that is of financial cause and effect. The idea I am talking about is cheap money stimulates spending. Whiether that is people buying houses dues to rock bottom mortgage lending rates or the person who books that trip because their floating credit card rate is super low. Businesses borrow more money to fund expantion projects and this in-turn usually lends to more jobs. More jobs means more people with money to spend and so the upward spiral of our fractional reseve monitary system.
Conversely, if you have higher interest rates, people tend to spend less, and often look at paying down debt, businesses look at cutting costs (usually because less people are buying their products and services) and this can mean less jobs which means less people making money to spend. YES, this is an over-simplifcation but this is an important part of how things work.
So when the mosters of this system, the people who run the Bank of Canada and the Minister of Finance are saying that market is over heated or people should consider paying down some of their debt or any other simialier warning: you should really pay attension to what is being said. (more to come!)