Discounting the Discount Rate

So by now you have probably heard the big news. The FED unexpectedly came out and raised the discount rate last week. As a repercussion........the market panicked, homeowners everywhere dropped their head in disgust and I even saw a couple Realtors with a case of the "lip quivers". So what now.........are we destined to succumb to rising rates, falling home prices, and on a more positive note, CD's yielding higher than a .05% return?

Don't get ahead of yourself. Go ahead and put down the stiff drink and call off the relocation to Canada for now. The discount rate increase will impact your life about as much as a fly getting a cramp in its wing.......in Africa. I'll even go as far as to say that if you are a frequent traveler to Africa I might even be overstating things. The discount rate is essentially the rate at which the banks would receive funds from the Central Bank. In normal economic times these are overnight loans. In times of turmoil........2008 for example, these loans were given up to 90 days to be paid back at a 0-.5% interest rate, depending on when in the last three years we are talking about. Which the banks, of course, would then turn around and invest in our Businesses and individuals right?

Yeah, not so much........that might have been the FED's intention but.........what happened more recently as things calmed down was that banks were utilizing these "overnight" loans to invest at their discretion for large interest returns. There were some banks making twice to three times the interest income that they did in prior years. We are not talking about hundreds or even millions, think hundreds of millions.

Let me stop right there and say, I personally find it completely shocking that the bank would exploit, for gain, our Central Bank and Tarp (aka taxpayer funds) for personal gain without any regard for the best interest of the United States and its account holders and consumers. Just shocked.

Am I laying on the sarcasm thick enough? So if you were wondering why the banks earnings looked so good by the end of the year when we were talking financial Apocalypse in March........there you go. But, that being said, unless you are a major shareholder in a bank, it really shouldn't affect your life one little bit.

However, be forewarned the day of reckoning is coming. GDP is rising and money is still flying off the press in DC. So rates will be rising......just hopefully later than sooner.

Okay, now you can commence with that stiff drink......