Losers In The Era Of Cheap Money

Losers In The Era Of Cheap Money, Even with excellent credit, Michael Shreve can’t find a bank to trade in his high-rate mortgage. Michael Shreve, a 57-year-old science teacher in Marysville, Wash., has watched helplessly as mortgage rates have fallen. He said that despite his stellar credit score, no bank had been willing to let him trade in his 6.35 percent 30-year mortgage because his house was now worth less than when he bought it.

“At some point,” he said, interest rates are going to go up again, “and I should have been able to get those low rates. It’s not fair.”

As interest rates have been dropping to new lows seemingly by the week, American companies have been taking advantage of the cheap borrowing costs, but consumers have been largely left on the sidelines.

New data this week from the Federal Reserve shows that in the first quarter of this year, American businesses were taking on new debt at the fastest rate since the financial crisis in 2008. American households, though, were heading in the opposite direction, increasingly shedding debt.

And as in the case of Mr. Shreve, the lack of borrowing by American families was not always by choice. Another recent Fed report shows that while more consumers are interested in buying homes or refinancing existing mortgages, banks remain hesitant to extend credit to them.

Consumers are also getting squeezed on the investing front. Wary of the volatile financial markets and worried about the continued weakness in the economy, they have been putting more money into ordinary savings accounts, the new data shows. But those accounts are paying an average of 0.1 percent, according to Bankrate.com.

“There’s definitely winners and losers in this kind of extremely low interest rate environment,” said Ed Yardeni, the president of Yardeni Research. “In this case, any borrower that has access to the capital markets and doesn’t have to fill out a loan application at a bank is definitely going to have a tremendous advantage.”

Of course, the declining debt load of households is not necessarily bad. Many economists see it as a welcome shift from the borrowing binge that helped cause the financial crisis, and the Fed data shows that the lack of new debt has freed consumers up to spend more.