by Adhvith Dhuddu, Collegiate Times Regular Columnist
Wednesday, September 26th, 2007
If you think small towns like Blacksburg are sheltered from decisions taken by financial powerhouses in New York and Washington, D.C., you may be caught off guard. Although we are minnows in a gigantic economic sea, we are affected in many ways by the macro moves in the financial system.
Here are some critical issues currently facing the U.S. economy and what they mean for us in Blacksburg.
There was much hullabaloo last week when the Federal Reserve cut interest rates by 0.5 percent (from 5.25 to 4.75 percent). The stock markets replied with a 3 to 4percent rally worldwide, and the dollar weakened. Let's see how this affects you and me.
By cutting rates, the Federal Reserve made borrowing for banks easier. The primary sources of money for banks are the Federal Reserve and depositors like us. The Federal Reserve controls the printing presses and decides how much money is in the system via 12 official Federal Reserve Banks. As banks rely more on the Federal Reserve, changes in the rate at which banks can borrow from the Feds affect how much they pay depositors for their money.
By cutting the interest rates, credit is cheaper for the banks, and they would prefer borrowing money from the Federal Reserve rather than us. So we can expect banks to be stingier with the savings rate they offer us. You can also expect the interest rate offered for money market accounts and certificate of deposits to decrease.
Many students have loans to pay off or plan to pay off after graduation. All student loans with variable-interest rates will likely see a reduction as they are pegged to the prime lending rate. If your student loan does in fact have a variable rate, you can take advantage of the current depressed variable interest rate and either switch to a fixed interest rate or plan to pay off more with the current low rates. I also suspect that this rate will continue to decline gradually as more rate cuts are expected from the Federal Reserve, so you could wait for a lower rate.
For the first time in four years, non-farm payrolls fell by 4,000 for the month of August. Non-farm payrolls measure the total number of jobs added or lost monthly in the U.S. economy (except farm and government employees).
These are also the first signs that the U.S. economy is heading for a recession. Hence, finding a job after graduation will be challenging, and the percentage of graduates with full-time job offers might decline considerably.
Manufacturing jobs have always been reflective of the economic strength of a country and are considered to be the backbone of an economy. With wages also rising constantly, this decline will continue with dire consequences for the U.S. economy.
Crude oil has been setting record highs in trading sessions across the globe. Although the Organization of the Petroleum Exporting Countries (OPEC) recently voted to increase supply and are vigorously pumping at full capacity, crude prices seem to have no where to go but up.
Other pivotal factors like our grim fiscal deficit numbers, weakening dollar and massive trade deficits could act as a synergy to send the economy into a recession for the first time in six years. The GDP numbers for the next few quarters will decide whether or not this will happen.
Online link to this article:
http://www.collegiatetimes.com/stories/2007/09/26/money_whizdom__recession_might_be_in_sight
Wednesday, September 26th, 2007
If you think small towns like Blacksburg are sheltered from decisions taken by financial powerhouses in New York and Washington, D.C., you may be caught off guard. Although we are minnows in a gigantic economic sea, we are affected in many ways by the macro moves in the financial system.
Here are some critical issues currently facing the U.S. economy and what they mean for us in Blacksburg.
There was much hullabaloo last week when the Federal Reserve cut interest rates by 0.5 percent (from 5.25 to 4.75 percent). The stock markets replied with a 3 to 4percent rally worldwide, and the dollar weakened. Let's see how this affects you and me.
By cutting rates, the Federal Reserve made borrowing for banks easier. The primary sources of money for banks are the Federal Reserve and depositors like us. The Federal Reserve controls the printing presses and decides how much money is in the system via 12 official Federal Reserve Banks. As banks rely more on the Federal Reserve, changes in the rate at which banks can borrow from the Feds affect how much they pay depositors for their money.
By cutting the interest rates, credit is cheaper for the banks, and they would prefer borrowing money from the Federal Reserve rather than us. So we can expect banks to be stingier with the savings rate they offer us. You can also expect the interest rate offered for money market accounts and certificate of deposits to decrease.
Many students have loans to pay off or plan to pay off after graduation. All student loans with variable-interest rates will likely see a reduction as they are pegged to the prime lending rate. If your student loan does in fact have a variable rate, you can take advantage of the current depressed variable interest rate and either switch to a fixed interest rate or plan to pay off more with the current low rates. I also suspect that this rate will continue to decline gradually as more rate cuts are expected from the Federal Reserve, so you could wait for a lower rate.
For the first time in four years, non-farm payrolls fell by 4,000 for the month of August. Non-farm payrolls measure the total number of jobs added or lost monthly in the U.S. economy (except farm and government employees).
These are also the first signs that the U.S. economy is heading for a recession. Hence, finding a job after graduation will be challenging, and the percentage of graduates with full-time job offers might decline considerably.
Manufacturing jobs have always been reflective of the economic strength of a country and are considered to be the backbone of an economy. With wages also rising constantly, this decline will continue with dire consequences for the U.S. economy.
Crude oil has been setting record highs in trading sessions across the globe. Although the Organization of the Petroleum Exporting Countries (OPEC) recently voted to increase supply and are vigorously pumping at full capacity, crude prices seem to have no where to go but up.
Other pivotal factors like our grim fiscal deficit numbers, weakening dollar and massive trade deficits could act as a synergy to send the economy into a recession for the first time in six years. The GDP numbers for the next few quarters will decide whether or not this will happen.
Online link to this article:
http://www.collegiatetimes.com/stories/2007/09/26/money_whizdom__recession_might_be_in_sight
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