| Three economists go hunting and come
| |
| | Bills, to Money Market Funds, to short
|
| across a large deer. The first economist
| |
| | term bank deposits, to everything else.
|
| fires and misses three feet to the right.
| |
| | All other short term rates are set by the
|
| The second fires and misses three feet to
| |
| | markets, but if they start to move very
|
| the left. The third doesn't fire, but
| |
| | far away from where they should be,
|
| shouts out with great excitement, "we got
| |
| | arbitragers come into the picture to
|
| him, we got him!"You need to borrow and
| |
| | drive them back into line. The bottom
|
| your lender gives you a choice between a
| |
| | line - and the one thing to watch - is
|
| fixed rate and a variable rate loan.
| |
| | the Fed Funds Rate; nothing else matters,
|
| Which do you choose? Or, you have excess
| |
| | as far as short term interest rates are
|
| funds that you don't need for a while. Do
| |
| | concerned.Long term rates, on the other
|
| you buy a fixed rate government note, or
| |
| | hand, are not directly influenced by the
|
| put the money in your business' money
| |
| | Federal Reserve and are much more
|
| market fund? This should simplify things
| |
| | dependent on supply and demand factors
|
| for you and give you what you need -
| |
| | and the overall direction of the
|
| without firing two shots and thinking
| |
| | financial markets. Supply and demand can,
|
| that, on average, you hit the mark.When
| |
| | and often does, extend across financial
|
| you finish reading this in ten minutes,
| |
| | markets. For example, if investment in
|
| or so, you're not going to be an interest
| |
| | the stock market is weak, those funds
|
| rate guru. Leave that to the economists,
| |
| | need to go somewhere and may end up in
|
| the bankers and the other self-proclaimed
| |
| | the bond market; this means that demand
|
| experts who try to make a living
| |
| | for bonds increases and this can push
|
| predicting what interest rates will do
| |
| | long term rates higher. Or, financial
|
| next. But, you will have enough of an
| |
| | traders may believe that inflation will
|
| understanding to directionally forecast
| |
| | increase down the road and push long term
|
| where interest rates are likely to be
| |
| | interest rates higher as a result. Or,
|
| headed, why, how your small business
| |
| | speculators may come into the market and,
|
| might be affected, and what you should be
| |
| | at least for short periods of time, push
|
| doing to protect your company.A lot of
| |
| | long term rates significantly in one
|
| the confusion and mystery about interest
| |
| | direction, or another. The point to
|
| rates stems from inaccurate and sometimes
| |
| | remember is that collective factors in
|
| misleading statements in the press -
| |
| | the financial markets are responsible for
|
| because too many financial writers don't
| |
| | movements in long term rates and, while
|
| know much more about interest rates than
| |
| | the Federal Reserve can influence long
|
| you do. They tell us that "rates" are
| |
| | term rates by moving short term rates up,
|
| moving higher - well, which rates? They
| |
| | or down, it doesn't set them directly and
|
| tell us that the President, or congress,
| |
| | it is sometime frustrated because the
|
| or the Federal Reserve Chairman is
| |
| | markets "over-ride"" their
|
| "responsible" for rates going up. They
| |
| | intentions.That's enough Economics 101.
|
| say that the Federal Reserve is trying to
| |
| | Here are some interest rate rules of
|
| push "mortgage rates" higher. They imply
| |
| | thumb that can help your small business.
|
| that banks are "gouging" customers with
| |
| | Our economy tends to continuously repeat
|
| high loan rates and are "miserly" with
| |
| | cycles of growing for several years and
|
| the rates they pay on deposits. So, let's
| |
| | then slipping into recession for a year
|
| try to get enough things straight to take
| |
| | or two. In the early stages of an
|
| the mystery out of this.Stop thinking
| |
| | economic recovery, both short term and
|
| about what "rates" are, where "rates" are
| |
| | long term interest rates stay low; as
|
| heading, and how "rates" are going to
| |
| | growth continues, however, short term
|
| affect your business. There are not
| |
| | rates start to rise. Then in the middle
|
| "rates" - there are short term rates
| |
| | of the recovery, there is often some
|
| (i.e. less than one year) and long term
| |
| | modest movement in longer term rates.
|
| rates (you guessed it - more than one
| |
| | Toward the end of an economic growth
|
| year) and it's important to differentiate
| |
| | cycle, the economy really heats up and
|
| between the two. Think about the interest
| |
| | both short term and long term rates rise
|
| rates on government securities; you can
| |
| | further. In this "end game," however,
|
| buy them with maturities that range
| |
| | short term rates are likely to move up
|
| anywhere from a few days to almost thirty
| |
| | much more quickly and, at times, actually
|
| years. The important things to understand
| |
| | be higher than long term rates. Finally,
|
| are that, while short term and long term
| |
| | as the economy collapses, all interest
|
| rates move in the same general direction
| |
| | rates start to fall, but short term rates
|
| over long periods of time, they don't
| |
| | normally fall faster and further than
|
| change at the same speed, they often
| |
| | long term rates.This is, of course, a
|
| don't change by the same amount, and,
| |
| | generalization, but what does it mean and
|
| sometimes, they can actually move in
| |
| | how do you take advantage of it? Just
|
| opposite directions.The level of short
| |
| | follow the likely interest rate trend. If
|
| term rates is primarily a function of
| |
| | you are borrowing at the beginning of an
|
| what the Federal Reserve - the country's
| |
| | economic recovery, get a long term rate -
|
| central bank - wants them to be. The Fed
| |
| | at the end of the recovery, a short term
|
| controls short term rates by reviewing
| |
| | rate might be better. If you're saving,
|
| and setting the Fed Funds rate every few
| |
| | it's just the opposite - use a short term
|
| weeks. The Fed Funds rate is the rate at
| |
| | rate at the beginning of a recovery and a
|
| which U.S. banks lend to each other, when
| |
| | long term rate toward the end.Jim Deyo is
|
| some banks have excess funds and others
| |
| | the President of Business Advisor Online
|
| need to borrow them to balance their
| |
| | ( an information service for small
|
| books at the end of each day. (These
| |
| | businesses. As a former Sr. Vice
|
| "loans" between large banks usually
| |
| | President with a major banking
|
| expire the next day and have to be
| |
| | institution, he worked extensively with
|
| renegotiated.) So, the Fed Funds rate is
| |
| | small and medium sized businesses and has
|
| what the Fed says it is; they set the
| |
| | over 30 years experience in commercial
|
| rate where they want it to be and change
| |
| | and consumer lending, accounting,
|
| it by whatever amount they want.Then the
| |
| | finance, marketing, and strategic
|
| level of the Fed Funds rate influences
| |
| | planning. You can e-mail him at , or call
|
| all other short term rates, from Treasury
| |
| | him at (248) 563-7158.
|
