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How low can rates go?

So the stock market is thrilled that the Fed is launching yet another bond-buying program to keep interest rates low and make it cheaper for people and businesses to borrow money.

The bigger question, however, is how much good it will do.

With interest rates already at historic lows, will more people rush out to buy cars just because rates are a smidge better? Probably not.

Will home shoppers become home buyers because mortgage rates, already at record lows, have dropped enough to shave a couple of bucks off their monthly payment? I doubt it.

What ails the economy, unfortunately, aren't the type of things that can easily be undone by the Fed dipping into its traditional bag of tricks and manipulating interest rates.

This recession has been so ugly - and the halting recovery so long - because its roots lie in more than a decade of debt accumulation and a housing bubble that have devastated the finances of vast numbers of consumers. They're not looking to borrow any more money. They want to pay back what they borrowed years ago. And the poor homeowners in those high-flying markets that went bust are just trying to get their financial feet back on the ground.

With consumers focused on digging themselves out of debt, they're not spending. And when consumers aren't spending, businesses aren't selling. And when businesses aren't selling, they're not hiring and they're not giving raises. Oh, and they're making their workers pay more for their health insurance, which is just like giving them a pay cut. And when employers aren't giving raises and are hoisting more costs on employees, workers aren't buying more.

Is it any wonder, then, that the average car that's on the road today is more than 10 years old.

It's a vicious cycle. One that isn't easily broken, which is why this recovery has dragged on for so long. And unfortunately, lower interest rates and a higher stock market won't make it all better.

- David Robinson



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