Interest Rates 101

Funny how so much is made of our Fed lowering the various interest rates:

http://www.federalreserve.gov/releases/h15/update/

The Bank Prime Loan rate is 5 percent. in case no one noticed….the European Community is raising theirs a quarter percent to 4 1/4%. In the meantime, the sub-prime meltdown has affected the European Community more than it has the USA! They too had been sold a bill of goods on Derivative and Hedge Fund debt Vehicles. $387 Billion dollars has been written off as bad uncollectible debt between the US and European Community. $200 billion of that was suffered by the European Central Bank. Of the $166 billion in loses suffered by US banks…they have sold those to our European banking partners. US banks have been able to reconstitute raised capital to $141 billion dollars of the $166 initially invested. The European banks on the other hand have only been able to get $125.5B back. Meaning that they will have to go out and find another $75 billion dollars in raised capital to get their balance sheets flush!

The odd thing is that European Banking rates have remained unchanged over the last year at a stable 4 percent. US banking rates have fallen like stone! No one knows which institutions are going to fail…and not find that capital infusion! It could be anyone!

Meanwhile, they are rioting in Malaysia regarding the skyrocketing gas prices! Rioting in Paris! Rioting a lot of places for gasoline or rice or food in general. The problems are especially troublesome in Africa! Unless we get a handle on the raising cost of oil…….we may be hitting critical mass shortly.