# Will low interest rates stimulate consumer spending? **URL:** \ **Category:** Great Debates\ **Created:** [August 15, 2011, 9:07pm UTC](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828 "2011-08-15T21:07:49Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![joebuck20](https://avatars.discourse-cdn.com/v4/letter/j/74df32/32.png) [@joebuck20](https://boards.straightdope.com/u/joebuck20)\ **Post date:** [August 15, 2011, 9:07pm UTC](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828/1 "2011-08-15T21:07:49Z")
There was an interesting article in the New York Times today about this. [http://www.nytimes.com/2011/08/15/business/low-interest-rates-do-little-to-sway-nervous-consumers.html](http://www.nytimes.com/2011/08/15/business/low-interest-rates-do-little-to-sway-nervous-consumers.html) > [@](#): > > The Federal Reserve’s announcement last week that it intended to keep credit cheap for at least two more years was a clear invitation to Americans: Go out and borrow. > > But many economists say it will take more than low interest rates to persuade consumers, a crucial driver of the nation’s economy, to take on more debt. > > There are already signs that the recent stock market upheaval, turbulence in Europe and gridlock in Washington over the federal deficit have spooked consumers. On Friday, preliminary data showed that the Thomson Reuters/University of Michigan consumer sentiment index had fallen this month to lower than it was in November 2008, when the country was deep in recession. Personally I can’t really see myself taking on more debt. We’re already stretched thin with the mortgage. I was hoping to be able to buy a new car in the near future, but I don’t want to be stuck with more bills should something happen with my job. So, this just seems like another gimmick from Fed that won’t really do much to dig us out of the hole we’re in. ---
**Author:** ![Der\_Trihs](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/der_trihs/32/233_2.png) [@Der\_Trihs](https://boards.straightdope.com/u/Der_Trihs)\ **Post date:** [August 15, 2011, 9:29pm UTC](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828/2 "2011-08-15T21:29:00Z")
> [@joebuck20](#): > > **Will low interest rates stimulate consumer spending?** I doubt that interest rates of zero would. As you say, people already in serious debt are going to be reluctant to take on yet more. Especially when the future looks as economically dark as it does. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [August 15, 2011, 9:35pm UTC](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828/3 "2011-08-15T21:35:28Z")
I think the alternative is raising interest rates, which would hurt. It is hard to get lower than zero, which is why other methods, such as stimulus, is required. That we are going in the opposite direction is very bad. Especially when low interest rates mean that the government can do a low of necessary infrastructure improvement very cheaply, with the savings coming from interest rates, not from the workers employed. ---
**Author:** ![Mr\_Smashy](https://avatars.discourse-cdn.com/v4/letter/m/2bfe46/32.png) [@Mr\_Smashy](https://boards.straightdope.com/u/Mr_Smashy)\ **Post date:** [August 16, 2011, 1:05am UTC](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828/4 "2011-08-16T01:05:42Z")
It was designed to keep the banks healthy, so they can continue to borrow at (near) zero and loan out higher. Also, to a lesser extent, for corporations (if cost of capital is super low, they don’t need a high IRR to justify new investment). All this should, if all goes well, mean more jobs. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [August 16, 2011, 1:16am UTC](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828/5 "2011-08-16T01:16:33Z")
I believe they are talking about the rate hat banks get money from the government. the amount banks charge the consumers will still be outrageous. The banks have proven they have zero interest in the health of the American economy ,or any interest in helping depositors. They are in full gouge mode. ---
**Author:** ![Der\_Trihs](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/der_trihs/32/233_2.png) [@Der\_Trihs](https://boards.straightdope.com/u/Der_Trihs)\ **Post date:** [August 16, 2011, 2:20am UTC](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828/6 "2011-08-16T02:20:06Z")
> [@Mr\_Smashy](#): > > Also, to a lesser extent, for corporations (if cost of capital is super low, they don’t need a high IRR to justify new investment). > > All this should, if all goes well, mean more jobs. Not really; no demand means no reason for corporations to expand, and therefore no new jobs. Corporations are _already_ sitting on plenty of money. ---
**Author:** ![Askance](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/askance/32/8281_2.png) [@Askance](https://boards.straightdope.com/u/Askance)\ **Post date:** [August 16, 2011, 2:30am UTC](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828/7 "2011-08-16T02:30:08Z")
> [@](#): > > Will low interest rates stimulate consumer spending? > > …this just seems like another gimmick from Fed that won’t really do much to dig us out of the hole we’re in. It is necessary but not sufficient. You can’t seriously think they should raise interest rates right now? ---
**Author:** ![joebuck20](https://avatars.discourse-cdn.com/v4/letter/j/74df32/32.png) [@joebuck20](https://boards.straightdope.com/u/joebuck20)\ **Post date:** [August 16, 2011, 2:38am UTC](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828/8 "2011-08-16T02:38:19Z")
> [@Askance](#): > > It is necessary but not sufficient. You can’t seriously think they should raise interest rates right now? Not saying that they should necessarily raise interest rates. But to pretend that this is more than a Band-Aid is pretty silly. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [August 16, 2011, 6:10am UTC](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828/9 "2011-08-16T06:10:49Z")
It definitely has positive effects. One example: If mortgage rates go down enough, people start refinancing their mortgages. That lowers their monthly payments and puts more money in their pockets. The problem is that in this environment people are likely to just save the extra money. Also, people do have to buy new cars when their old ones break down, even if they’re trying to save. At lower interest rates, car loans are cheaper and leave more money in consumer’s pockets. That will either cause them to save faster, so they get back to the point where they want to spend again faster, or it’ll get them to just increase their spending right off the bat. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [August 16, 2011, 7:11am UTC](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828/10 "2011-08-16T07:11:52Z")
> [@gonzomax](#): > > I believe they are talking about the rate hat banks get money from the government. the amount banks charge the consumers will still be outrageous. The banks have proven they have zero interest in the health of the American economy ,or any interest in helping depositors. They are in full gouge mode. Current mortgage rates are hardly outrageous. Especially to anyone who lived through the early '80s. I never thought my mortgage would be anything like my father’s from 1951, but my current one is pretty close. Unsecured credit card debt is another matter entirely. ---
**Author:** ![Dick\_Dastardly](https://avatars.discourse-cdn.com/v4/letter/d/c4cdca/32.png) [@Dick\_Dastardly](https://boards.straightdope.com/u/Dick_Dastardly)\ **Post date:** [August 16, 2011, 6:19pm UTC](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828/11 "2011-08-16T18:19:37Z")
It’s not really a gimmick, it’s just common sense. They’re not going to put rates up when the economy is so fragile. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [August 16, 2011, 8:24pm UTC](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828/12 "2011-08-16T20:24:19Z")
> [@Voyager](#): > > Current mortgage rates are hardly outrageous. Especially to anyone who lived through the early '80s. I never thought my mortgage would be anything like my father’s from 1951, but my current one is pretty close. > > Unsecured credit card debt is another matter entirely. Credit card rates don’t track the bank rate closely because they have a lot more to do with the likelihood of default than with the cost of money, and because they’re unsecured it’s hard for the credit card company to get its money back in the case of default. ---
**Author:** ![Askance](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/askance/32/8281_2.png) [@Askance](https://boards.straightdope.com/u/Askance)\ **Post date:** [August 17, 2011, 12:14am UTC](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828/13 "2011-08-17T00:14:22Z")
> [@Askance](#): > > It is necessary but not sufficient. You can’t seriously think they should raise interest rates right now? > [@joebuck20](#): > > Not saying that they should necessarily raise interest rates. But to pretend that this is more than a Band-Aid is pretty silly. There’s no pretence involved, it IS more than a band-aid - if it wasn’t then raising it would make no difference. As I said,it is absolutely necessary and consequently not silly at all. ---
**Author:** ![asterion](https://avatars.discourse-cdn.com/v4/letter/a/4da419/32.png) [@asterion](https://boards.straightdope.com/u/asterion)\ **Post date:** [August 17, 2011, 1:09am UTC](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828/14 "2011-08-17T01:09:12Z")
Personally, I can get an auto loan for somewhere between 3.25% and 4.25%, depending on the loan amount and how good my credit is (it’s pretty good, but I don’t know if it’s good enough to qualify at the lowest APR). That assumes I finance through my bank and not the dealer, where in theory I could get something even lower. And yes, I could use a new car and will need one sooner rather than later, although the one I’ve got works fine as basic transportation right now. But if I have to finance about $20,000, even if I could get 0% interest and have it work out better than taking incentives, is something like $350 a month for 5 years. At a more likely interest rate, it’s closer to $380. I might be able to convince myself to do it before I absolutely have to if I was sure that my situation was stable, but a loan like that means that I have very little leeway for 5 years straight and probably be dropping other things (like cable) and spending less money otherwise. I won’t be able to save as much either. It’s a similar situation in buying a house, with the crucial difference is that if I buy a house, at least I’ve just substituted one cost for another and not added on a new one. ---
**Author:** ![Chessic\_Sense](https://avatars.discourse-cdn.com/v4/letter/c/7c8e57/32.png) [@Chessic\_Sense](https://boards.straightdope.com/u/Chessic_Sense)\ **Post date:** [August 17, 2011, 1:27pm UTC](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828/15 "2011-08-17T13:27:23Z")
> [@asterion](#): > > Personally, I can get an auto loan for somewhere between 3.25% and 4.25%, depending on the loan amount and how good my credit is (it’s pretty good, but I don’t know if it’s good enough to qualify at the lowest APR). That assumes I finance through my bank and not the dealer, where in theory I could get something even lower. And yes, I could use a new car and will need one sooner rather than later, although the one I’ve got works fine as basic transportation right now. But if I have to finance about $20,000, even if I could get 0% interest and have it work out better than taking incentives, is something like $350 a month for 5 years. At a more likely interest rate, it’s closer to $380. I might be able to convince myself to do it before I absolutely have to if I was sure that my situation was stable, but a loan like that means that I have very little leeway for 5 years straight and probably be dropping other things (like cable) and spending less money otherwise. I won’t be able to save as much either. > > It’s a similar situation in buying a house, with the crucial difference is that if I buy a house, at least I’ve just substituted one cost for another and not added on a new one. There’s always someone on the margin. I just bought a house that I could afford at 4.5% but not at 6%. Yes, it’s a lot of money, but so is the rent I pay now. So I understand what you’re saying about your situation, but I don’t see how you’re saying that applies to the aggregate. ---
**Author:** ![Omar\_Little](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/omar_little/32/269_2.png) [@Omar\_Little](https://boards.straightdope.com/u/Omar_Little)\ **Post date:** [August 17, 2011, 2:28pm UTC](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828/16 "2011-08-17T14:28:24Z")
> [@Sam\_Stone](#): > > The problem is that in this environment people are likely to just save the extra money. ^This. Go back and look at how people in Japan reacted when their economy was in the tanker and their government lowered interest rates and kept them at near or at zero levels. People did not borrow and spend more…they saved more. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [August 17, 2011, 2:43pm UTC](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828/17 "2011-08-17T14:43:21Z")
We have decried Americans lack of saving for decades. Now it is bad to save. It would be reckless to extend yourself in this financial climate. Few are feeling comfortable in their employment. Social Security recipients are aware the Repubs want to slash and end it. Why would they spend now. Banks are jacking up fees and cranking interest rates on credit cards. What is there that would encourage spending? ---
**Author:** ![Dangerosa](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)\ **Post date:** [August 17, 2011, 3:05pm UTC](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828/18 "2011-08-17T15:05:48Z")
> [@Der\_Trihs](#): > > Not really; no demand means no reason for corporations to expand, and therefore no new jobs. Corporations are _already_ sitting on plenty of money. I actually think the problem here is different than just demand. We’ve been expanding. Demand is going up. We expect the next two quarters to go back down, but we have been building and selling more and more product for the past two years, trending (with normal business cycles) upward. And the jobs are overseas. Because the labor rate is 1/4th what it is here. Even my stock portfolio is heavy on “emerging markets.” We will take U.S. money, U.S. tax breaks, U.S. low interest rates, and invest it in China. Welcome to a Global Economy. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [August 17, 2011, 7:05pm UTC](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828/19 "2011-08-17T19:05:19Z")
> [@Sam\_Stone](#): > > Credit card rates don’t track the bank rate closely because they have a lot more to do with the likelihood of default than with the cost of money, and because they’re unsecured it’s hard for the credit card company to get its money back in the case of default. They also have a lot to do with bank profitability. But rates were high even before the crash, and it certainly can be argued that driving demand on this kind of expensive credit is bad in the long run. Basically, anyone who doesn’t see a low interest environment these days needs to get their finances in shape. I see zero interest terms for a lot of consumer goods, in fact. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [August 17, 2011, 7:09pm UTC](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828/20 "2011-08-17T19:09:54Z")
> [@gonzomax](#): > > We have decried Americans lack of saving for decades. Now it is bad to save. > It would be reckless to extend yourself in this financial climate. Few are feeling comfortable in their employment. Social Security recipients are aware the Repubs want to slash and end it. Why would they spend now. > Banks are jacking up fees and cranking interest rates on credit cards. What is there that would encourage spending? You’re falling into the conservative trap. We don’t need to just encourage spending, we need to encourage sustainable consumption. Greenspan encouraged spending just fine by keeping interest rates unnaturally low and doing nothing to deflate the housing bubble. That didn’t turn out well, did it? That obscured the fact that the wages of the middle class and below was stagnant. Let’s not make the same mistake again. Keep credit card rates high, but get some money into the hands of those who would spend it. And for those who claim this is stealing from the rich, the rich will make far more from a growing economy and market than they will ever lose from higher taxes now. It is a win-win unless you are an anti-tax fanatic. [Next page](https://boards.straightdope.com/t/will-low-interest-rates-stimulate-consumer-spending/592828.md?page=2)