Show The Trio Voice of Df Business A matter otter of great interest II Uv By t 1 L. L Lesher President of the Chamber of Commerce of the United States Stales Applied for Cor a loan lately If It so you were probably shocked by the size of oC Interest rates recently What can be done to get the rates down dawn Well there are two schools of oC thought on that One group says the answer Is to print more money The other group says the answer is to print less money TIIE REASON for Cor this slight divergence of oC opinion is that money is probably the only commodity which can increase in cost both when theres there's less of oC it and when theres there's more of oC it By now youre you're probably as confused as the typical congressman Read on and Ill I'll try to untangle things Its It's easy to understand why interest rates' rates go up when money is scarce or tight When borrowers want more money than lenders are willing willingto to part with at a given interest rate then some borrowers will offer to pay a higher rate to get what they need By this process the price of oC money its interest rate is bid up just like an auction WHEN WilEN THE TIIE cost of oC borrowing money goes up less lessof lessof lessof of it is borrowed People put off buying n new w cars or houses or appliances Businessmen put off expansion plans The economy slows down Since an economic slowdown usually causes unemployment tight money is politically un un- popular Whenever interest rates go up far Car enough to pinch there are calls in Congress for forthe forthe forthe the Federal Reserve System to ease ease up up and make more money available that is create new money In theory such an increase in the money supply should bring down the interest rate But that theory hasn't been working very well in practice lately because of inflation U UNDERSTANDING the relationship between inflation and interest rates is extremely im important ort fora 11 lI of us t o da especially those in Congress This relationship is not at all difficult to see if you put yourself in the place of the the- lender Suppose your brother- brother law in-law wants to borrow from you for one year at a simple interest rate of five percent At the end of the year you would hope to get back your original plus an extra 5 for your service to the borrower But wait a minute If inflation inflation inflation in in- for that year is 10 percent percent percent per per- cent then the you get back will no longer be worth in terms of what it will buy it will be worth only 90 So even with the extra 5 in interest you will still have lost on the deal The 5 in interest has also depreciated to How long would you be willing willingto to go on making loans on that basis Not long Ill I'll bet What you'd do is add an inflation premium to the interest rate to compensate you for what you expected to lose lase In the case of our example if you wanted to tomake tomake tomake make five percent in real terms you'd have to charge the borrower 15 percent And that my friends is how Inflation raises interest rates Interest rates also vary with the degree of oC risk foreseen by bythe bythe bythe the lender Your law in might have to pay a higher rate than General Motors But such charges vary with the Individual individual individual in In- borrower and are not much affected by inflation SO WHAT'S TS T'S wrong with the Fed expanding the money supply to lower interest rates Well by now most of oC us know that inflation Is caused when the money supply increases faster than the supply of oC goods and services When the Fed creates a lot of oC new money to ease interest interest in in- terest rates it also aggravates inflation And inflation raises interests rates That's the trap As Treasury Secretary William Simon said early this year Each time we lose a bout with inflation interest rates are higher In 1966 rates on term long-term corporate bonds bond peaked at a little over six percent in 1970 they reached almost 10 percent and last year the high was 12 percent IF TilE THE credit needs of the Federal Government were not so great there would be more money available at lower rates for private borrowers without the need to print worthless dollars to satisfy the demand For all of us that's a matter of great interest HOT NEW ITEM Th Though ugh many Americans are aware of the vital need for home fire protection few have done anything about it The figures are chilling Last year alone fire injured killed and caused 2 billion worth of property only 8 per cent of US U.S. homes have fire extinguishers Fr I Whenever theres there's a fire people are concerned yet concerned yet many dont don't do anything about protecting themselves should a fire suddenly break breakout breakout breakout out in their home Everyone Every Every- one always thinks It cant can't happen to me Many fire rire extinguishers are bulky unattractive and confusing to use use some some reasons reasons reasons rea rea- sons why people dont don't buy them So Norelco decided to introduce a fire rire extinguisher extinguisher extinguisher extin extin- that's not only easy to handle and operate but butone butone butone one that also looks good in any room of the house Its It's called the Flame Fighter and its it's soft antique white slim and compact It comes with a convenient wall mount This timely safety addition to the home is designed to be used on grease electrical gasoline oil and paint fires and on all other B Band and C type fires This is is' is a hot item for the homeowner and a necessary necessary sary one |