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Today the Fed made the bold move of dropping interest rates by 0.75 percent. At first glance many people will think this will benefit them by lowering the payments on their loans. Well, if you have a Home Equity Line of Credit, or an adjustable rate mortgage it likely will help some. But, if you rent, have a payed off house, a fixed rate mortgage, or a fixed rate consumer loan of any type it won't help you. In fact it may just harm your finances. You may also be thinking that if you have a large amount of credit card debt that it will help your finances even more. The sad reality is that many people have been seeing their interest rates go up on their credit cards, even if they pay on time and have good credit. This has been occurring even though the fed has been on a relentless interest rate easing trend. The banks have been loosing money as a result of the mortgage mess, and have had to make it up by raising rates when possible on their credit card customers. That goes against what the fed is trying to accomplish with the cuts.

So, if many of us average citizens will see little personal benefit to the cut, it begins to loose its effectiveness. In fact it may actually harm many of us. There is a very good chance such a bold cut will increase inflation and lessen the buying power of the dollars in our wallets. Not to mention as the dollar becomes less and less secure as a global investment, who will fund our nations debtor lifestyle? Other governments that hold the US dollars in their reserves or US dollar denominated investments are going to reconsider such strategies as they loose millions due to a crashing value of the dollar.

The people who really are hurt are the Americans that have savings or live on the proceeds of their savings. Granted not enough Americans have sufficient savings, but those that do are now being punished for being careful and saving their dollars. It now has become even more difficult to find a good rate of return for your investment that is relatively safe. This makes it really hard for retirees to fund their retirement, without betting it all on some risky investment that offers a fairly attractive rate of return. If you factor in the terrible rate of return they can now get on an FDIC insured investment, taxes, and inflation a saver is actually loosing money. So, there really aren't any proceeds for a retiree to live off of.

The government seems to like to play number games. I think its ironic that they quote core inflation with energy and food stripped out. Obviously, they live in a different world than the rest of us. I don't know about you, but energy and food take up a significant portion of my families budget. So, don't fall for it... the government will want you to believe that inflation is remaining under control as they drop interest rates but it is clearly not.

Many in the financial markets will cheer the rate cut, assuming that will fix the problems. Its likely that markets will temporarily rally as traders bet that this move will stimulate the economy. But, don't follow the herd. This is just a temporary bandage before the infection really sets in. Keep in mind, if the fed is willing to risk inflation so badly, then the economy is in worse shape than they are letting on.

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