The domestic economy which derives 70% of its productivity from consumption needs low rates to generate demand for consumer products.  A 0-.25% rate means that prime rates sit at roughly 3.5%, low enough for most consumers to spend money on virtually everything.

The only problem is that for the most part, few have been willing to spend.  An economy so dependent on consumption needs strong spending to fuel job creation and even more spending.  The endless cycle of wealth has seemingly come to a standstill with few willing to act, and even fewer willing to speculate with business expansion.  No jobs = No Money, No Money = No Jobs.

Although the Federal Reserve failed to act in this 9-1 vote, many expect the FED will have to raise rates this summer in response to higher energy prices and general inflation.  Since US energy demand is largely displaced by foreign producers, higher oil prices mean a widening trade deficit and even more fiscal problems for a country already fighting to stay even.

Also, since nearly every good and service requires transportation in at least one stage of production, higher energy prices mean higher prices for virtually every product, domestic or imported.

That’s right a 0% rate could be near. What does that mean for you? Well eventually savings rates would have to go down, but your ability to loan money would be better. Which for some, could be a nice relief given the recent credit squeeze that has created the need for the Fed to act in this way.

A 0% rate could signal what everyone is fearing. Deflation, little to no economic growth and the need for the Fed to act drastically to bring the US back to it’s feet after a credit crisis has nearly toppled the largest banks in the world.

So what do you do with our money? Well, we might suggest paying off debt and saving a little more in a CD or savings account. Locking into rates now before they go too low and you get nothing in return for allowing a bank to keep your hard earned cash to loan out.

But that’s just some of things you can do. Nothing is fail safe these days, except maybe sticking it under the matress.

In cases like this, people would usually resort to a subprime loan since they cannot get loans with prime rates.

What are Subprime Loans?

Subprime loans are offered to individuals who have less than attractive credit history or scores. When you cannot qualify for the prime rate financing, it is highly unlikely that you will get the kind of loan that you want. Mortgage companies have exact requirements for prime mortgage loans. Basically, approval for loan despite bad credit score is the classic feature of a sub prime.

What is the drawback to these kinds of loans? Since financing companies know that loan default rate is very high when you have bad credit score, they usually charge high interest rates for subprime loans. This often translates into a bad personal finance setup for many people. Usually, however, the interest rate varies depending on how bad your credit score is.

Selecting a Lender

You might not be able to do anything about your credit score at the moment, but you have a choice as to your lender. There are companies that primarily specialize in these types of loans. There are traditional mortgage companies that are venturing into subprime loans. Make sure that you place a quote request with various lending companies before settling with one. By doing this, you may still get a great deal despite your credit score. You may still minimize the effects to your personal finance.

One key point however is that you must pay up your monthly installments on time or risk losing your property.

But today, when the Feds announced a quarter point cut stocks plummeted. I mean dropped like a rock, loosing almost 300 point overall. This after a morning of strong movement upwards.

Stocks like Google, GOOG, went from being up $5 to dropping nearly $20. Almost everything else followed suit, on the NASDAQ and the NYSE stocks just dropped.

The reason being, is because there was a general though that Feds would drop rates a half point and they didn’t. We’ll see how things rebound tomorrow.

Fed Chairman Ben Bernanke and other policymakers talked about the need to raise interests rates this time around to fend off the continued inflation that is occurring in the US economy. They also hinted the more interest rates hikes might be needed to fend off still more inflation over the next year.

This news came and gave the DOW a sizeable boost in early morning trading and ended the day up over 215 points, with the NASDAQ following suit at up 62 points. Gold and silver were both up as well on news of interest rates increases from the fed, trading on these commodities continues worldwide throughout the day and night.