The Good News And The Bad News……………………..

The good news for those of us with loans is that interest rates are at extremely low level. In today’s WSJ, New York prime is 3.25%, 30 year mortgages are 5.03%, and 48 month new car loans are at 5.14%. These are very good rates for those of us with debt. The lower rates either allow us to pay our loans off at a faster rate or qualify for larger amounts of debt.

The bad news, however, is that the exceptionally low interest rates coupled with inflationary rates under 1% indicate that the underlying economic structure is not improving. Historically, this country has used a combination of federal taxation and Federal Reserve controls to manage the economy. Stimulating the economy meant lowering federal taxes and reducing interest rates. When the economy over-heated, we did the reverse.

This worked well until the playing field changed. Today we live in a global economy. The things that are occurring in Europe with the Euro, do affect the average American. The same can be said of Asia. We are no longer economic isolationist.

The market has gone “ in the dumper” over the last few weeks because of the Euro crisis. The Euro crisis has been caused, according to the experts, because Greece, Italy and France decided to run their countries on credit. In effect, these countries have become governmental Enron’s and Worldcom’s. They are running on credit without any underlying assets to support the credit.

In response, the Greek government, under extreme pressure for the other European countries, looked to implement austerity programs. In other words, the Greek government proposed to stop living on credit, or at least reduce the degree of credit. In the perfect response from the “me- first” world, one of Greece’s larges unions, said hold on! The union said austerity is fine as long as it isn’t us.

I am hopeful but not optimistic that the U.S. Congress will learn the importance of fiscal responsibility from our European neighbor. I am equally hopeful that we, as Americans, will stand ready to make small sacrifices for the betterment of all should those sacrifices be needed.

So what does all of this mean? It means that not only do we need to take care of ourselves but we need to be intellectually invested in the fiscal interworkings of foreign governments. Our well being depends on other’s accountability.