Post Election "Analysis"
There has been a lot of analysis of the Presidential election results, lately. Some are saying that it was religious conservatives who made the difference, while some claim that Bush's improvement among Hispanic voters and women is what put him over the top. I am sure that there is some truth in all of that. But first of all, this discussion is at the margin, a swing of a few hundred thousand votes in the right state and the mirror image of Election 2000 might have occurred, with John Kerry winning the electoral college, while losing the popular vote by a percent or two. In others words, with over 100 million votes cast a shift of 0.2% would have been turned the world upside down. Ultimately, things are going fairly well, at the moment. Most people think that jobs are too hard to get, that Iraq is a mess and the price of a gallon of gas is way too high. But most of the same people have a job (maybe two), are not directly affected by events on the other side of the globe and can still afford to fill up the tank on the SUV that they just mortgaged the house to buy. So the incumbent gets to stay four more years (because even though he may not be what the people really want, who knows what the other guy would end up doing. The "other guy", John Kerry, surely doesn't know!)
But in a matter of hours, the Federal Reserve is going to meet. After that meeting, the cost of capital is going to go up 1/4%. That doesn't sound like much, but if you are in hock up to your eyeballs with more house than you need, more car than you need, more vacation cabin than you need, more RV than you need, etc., etc., etc., that $50k home equity line of credit at 3.25% is going to go up to 3.50% and that $350k ARM at 4.25% is going to go up to 4.50%. That is going to cost you about $60 a month more after the Fed meeting. And guess what, next month it is going to go up by the same amount. Matter of fact, the consensus among economists is that the Fed Funds rate will be 3.50% by 12/31/2005, up from 1.75% today. By that time, those two loans will cost you over $400 more per month than they do today. But wait, there's more! Those interest rate hikes will probably slow the economy down some, so those paychecks that aren't growing fast enough for you to afford to buy the house, the car, the cabin, the RV and the etc. without taking on a crushing debt load aren't going to be growing any faster. But somehow, you are going to have to come up with an extra $5,000 that year to make ends meet.
As long as the Iraqi elections go smoothly, the US withdraws and the oil starts flowing fast enough from that nation of tranquility to cause the price of crude to drop to $20 per barrel everything will be fine. If not, will there be a quarter of a million people with "voter's remorse"? Probably. If they had voted differently, would it have made a difference. Probably not.
But in a matter of hours, the Federal Reserve is going to meet. After that meeting, the cost of capital is going to go up 1/4%. That doesn't sound like much, but if you are in hock up to your eyeballs with more house than you need, more car than you need, more vacation cabin than you need, more RV than you need, etc., etc., etc., that $50k home equity line of credit at 3.25% is going to go up to 3.50% and that $350k ARM at 4.25% is going to go up to 4.50%. That is going to cost you about $60 a month more after the Fed meeting. And guess what, next month it is going to go up by the same amount. Matter of fact, the consensus among economists is that the Fed Funds rate will be 3.50% by 12/31/2005, up from 1.75% today. By that time, those two loans will cost you over $400 more per month than they do today. But wait, there's more! Those interest rate hikes will probably slow the economy down some, so those paychecks that aren't growing fast enough for you to afford to buy the house, the car, the cabin, the RV and the etc. without taking on a crushing debt load aren't going to be growing any faster. But somehow, you are going to have to come up with an extra $5,000 that year to make ends meet.
As long as the Iraqi elections go smoothly, the US withdraws and the oil starts flowing fast enough from that nation of tranquility to cause the price of crude to drop to $20 per barrel everything will be fine. If not, will there be a quarter of a million people with "voter's remorse"? Probably. If they had voted differently, would it have made a difference. Probably not.
posted by Matt Butler at 8:42 PM
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