Newspaper logo  
  Thinking About Rates


Thinking About Rates

by Fred Cederholm
In the past six years interest rates have bobbed up and down like a cork in the mid-Atlantic during a perfect storm.
I’ve been thinking about rates. Actually I’ve been thinking about corks, the Open Market Committee, benchmark rates, and background. In the past six years interest rates have bobbed up and down like a cork in the mid-Atlantic during a perfect storm—up, down, and now up again.

You see, in an effort to smooth out the crests and troughs of the American economy, the Open Market Committee of the US Federal Reserve Bank has taken interest rates from their highest level in almost twenty years to the lowest in over fifty years. Now, the pendulum swings back ever so slowly. I fear the Fed’s policies have accentuated problems, not fixed them!

Yearly interest on the national debt increases $20 billion for every quarter point rise in the federal interest rate.

When the Fed raised rates a quarter of a point for the eleventh time in that many months on September 20th, I began a column on interest. A national debt of $8 TRILLION costs Uncle $ugar an additional $20 BILLION in yearly interest for every quarter point (.25%) increase. I was attempting to flag the impending "category 9" financial hurricane that will hit the national government, many state and local governments, and every household across the nation burdened with near 100% financed real estate and/or carrying mega-credit card debt.

This column was mind-boggling and mind-numbing, both because of the sheer scope of numbers involved and because the differing benchmark rates (hardly part of everyone’s daily vocabulary, though they should be) are so misunderstood. Two rates that I (and the bankers I had audited) have erroneously used interchangeably for twenty-plus years were really distinctly different.

I usually pre-screen my technically oriented columns using a diverse group of friends and neighbors (and read them aloud to my little black Scottie, Macintosh II) before they are published. The feedback on this one was a universal "huh?" And, Mac II crawled under the bed before I finished! I really needed to lay some foundations in the definitions and the historical background for the column to make any sense.

There is a time value to money saved, borrowed, or lent; and that is called interest. The Fed impacts our lives in more ways than we realize. They set the rates of interest charged and paid nationwide. By doing so they regulate the expansion and contraction of our whole economy. The Fed acts as a "funds clearinghouse" for financial institutions by matching those with excess deposits (more liabilities than assets) to those with excess loans (more assets than liabilities). This may seem backwards; but you must realize that on the books of the financial institution the debits and credits are effectively reversed. Loans are assets to them, and deposits are liabilities.

The Open Market Committee of the Fed meets monthly and sets the Fed Funds rate. This is the one at which banks lend funds to each other overnight, and the Fed keeps it on target by supplying as much liquidity as there is demand for at the targeted rate. The Fed supplements this inter-bank transferring of funds by supplying credits in its own right to institutions in need of further "liquidity." The Discount rate refers to the interest charged on these Federal Reserve "provided" funds. It rises (and drops) in sync with the Fed Funds rate but traditionally carries a 1% higher cost to the borrowing institution and hence to the ultimate borrower.

“Prime” (or prime rate) rate refers to the interest charged to borrowers with high creditworthiness and an established relationship to the lending institution. This reflects the cost of interest paid to the depositors, or the applicable rate paid to the correspondent institution/Fed plus a mark-up covering the lender’s administration costs and profit. Those not meeting the criteria for a loan at Prime pay an additional premium that depends on the perceived lending risk level. Prime generally rises (and drops) in sync with the Fed Funds rate.

Credit card rates are a defined in terms Prime plus a mark-up percentage. The mark-up can change at the discretion of the card’s issuer in accordance with their criteria and notification policies. LIBOR, the London Inter Bank Offered Rate, with no direct ties to the Fed Funds rate, is also used. Do you know how all your interest rates are determined, and why they fluctuate? You should! I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.

Copyright 2005 Questions, Inc. All rights reserved. Fred Cederholm is a CPA/CFE, a forensic accountant, and writer. He is a graduate of the University of Illinois (B.A., M.A. and M.A.S.). He can be reached at

To "Audit" this column, and to learn more about the subjects discussed, please check out:

Copyright © 2005 The Baltimore Chronicle. All rights reserved.

Republication or redistribution of Baltimore Chronicle content is expressly prohibited without their prior written consent.

This story was published on October 4, 2005.

Local Stories, Events

06.11 How a nonprofit turned Baltimore County school storage rooms into a free general store for students in need

Ref. : Civic Events

Ref. : Arts & Education Events

Ref. : Public Service Notices

Books, Films, Arts & Education

06.14 The Trump administration is waging a quiet war on education

06.11 Underpaid Adjunct Professors Sleep in Cars and Rely on Public Aid [The disease of rapacious-capitalism infects the education system]


Ref. : Letters to the editor

Health Care & Environment

06.15 'The Changes Are Really Accelerating': Alaska at Record Warm While Greenland Sees Major Ice Melt

06.15 So much plastic is being made that "recycling has no impact" [Non-recyclable plastic must be made illegal to manufacture, use]

06.15 Climate crisis: aviation industry hears clamour for electric planes

06.15 We must transform our lives and values to save this burning planet [Increased ice melt in polar latitudes has been disguising reality in the middle latitudes. This effect will soon be replaced by record heat as ice volume and seasonal melting increasingly declines.]

06.15 This all-male council in Texas just voted to ban abortion [1:59 video; Bad assumptions foment ignorant actions...]

06.14 The Trans Mountain pipeline is a disaster – but Trudeau can make it right

06.14 The Pentagon emits more greenhouse gases than Portugal, study finds

06.14 Climate crisis: Alaska is melting and it’s likely to accelerate global heating

06.13 Chemical companies at centre of Guardian's Cancer Town series face state legal action [7:56 video]

06.12 'This is not a "what if" story': Tokyo braces for the earthquake of a century

06.12 Plant Species Have Been Disappearing 500 Times Faster Than Normal, Thanks to Humans

06.12 Atmospheric carbon levels are leaping. We can't afford more years like this

06.12 Politics as Usual and Planetary Destruction

06.12 Most 'meat' in 2040 will not come from dead animals, says report

06.11 Forest twice size of UK destroyed in decade for big consumer brands – report

06.11 Twice as many plants have gone extinct than birds, mammals, and amphibians combined

06.11 NOAA forecasts very large ‘dead zone’ for Gulf of Mexico

06.10 Conservatives should change how they think about global warming. I did [Another crisis issue conservatives won't acknowledge...]

06.10 Scottish Power to build vast battery to improve wind energy supply [Who won't understand this?]

06.10 Greenpeace activists board BP oil rig as it is towed out to sea [Fossil fuel company conduct should be illegal...]

06.09 Racism as a Public Health Crisis

06.08 GreenWay Reaches 100 EV Fast Chargers In Poland!

06.07 The Other Climate Threat is Fear & Apathy: We can Fix this by Voting in a Manhattan Project

06.07 Toyota speeds up electric vehicle schedule as demand heats up

06.07 For 'Challenging Us All to Confront the Realities of the Climate Crisis,' Greta Thunberg and Fridays for Future Movement Win Amnesty's Top Human Rights Award

06.07 Purpose in Life Protects Against Cognitive Decline Among Older Adults

06.07 All New British Columbia Light-Duty Vehicles Will Be Zero Emissions By 2040

06.07 Caribbean Solar Update: Curacao Solar Saves 10% In Energy Costs; Montecristi In The DR Doubles To 116 MW

06.07 Santiago (Chile) Adding 200 Electric Buses In 2019

06.07 Single-Payer Reform—“Medicare for All”

News Media Matters

06.15 China's Expanding Media Dominance in Africa

Daily: FAIR Blog
The Daily Howler

US Politics, Policy & 'Culture'

06.15 'Eye-Popping': Analysis Shows Top 1% Gained $21 Trillion in Wealth Since 1989 While Bottom Half Lost $900 Billion [More equality or bring back the guillotines!]

06.15 Hard Times in the Imperial Valley

06.15 Ro Khanna Forces Beltway Bandit to Refund Millions From Price Gouging

06.15 White House physicist sought aid of rightwing thinktank to challenge climate science [When your President is a quack he naturally surrounds himself with sycophants]

06.14 Do Your Jobs: Sick and Dying, They Brought Themselves Down Here to Speak - To No One

06.14 The Case for Reparations [5:31 video]

06.14 Bernie Sanders just made a brilliant defense of democratic socialism

06.14 Texas Progressive Jessica Cisneros Announces Primary Challenge to Unseat "Trump's Favorite Democrat" in Congress

06.13 Elizabeth Warren Has a Plan for Everything — Except Health Care

06.13 Where do the 2020 Democratic candidates stand on the key issues?

06.13 Hidden Figures Way: Nasa renames street to honor black female mathematicians

06.13 Why are we still pretending 'trickle-down' economics work? [We aren't ‘laffing’ now! In Trump-world all the worst people are celebrated. Ref.: 3:07 Idiocracy Courtroom Scene]

06.13 What’s actually in the Green New Deal, explained with a video [7:30 video]

06.13 Even the 1% Know They Aren't Paying Their Fair Share: New Poll Shows 60% of Millionaires Support Warren's Ultra-Wealth Tax

Justice Matters

06.14 Justice Denied, Delayed, or Done Right? Serious Concerns as Prosecutors Throw Out Charges in Flint Water Crisis Cases [A very flawed prosecution using suspiciously limited evidence has been thrown out, a stronger case will be brought using newly found, voluminous evidence.]

High Crimes

06.12 'Sea Rescues Have Been Criminalized' as German Boat Captain Faces 20 Years in Prison For Saving Refugees

06.11 Hundreds of North Korean execution sites identified, says rights group

Economics & Corrupt Capitalism

06.11 Capitalism isn't 'broken'. It's working all too well - and we're the worse for it

06.11 The problem with billionaires fighting climate change? The billionaires [Bloomberg's sanity to control greed to save the life-on-earth (and continuing profits) is unfortunately rare]

06.09 Elizabeth Warren’s economic nationalism vision shows there's a better way [As like championed by Economist Joseph Stiglitz]

International & Futurism

06.15 Africa’s Lost Kingdoms

06.15 Homophobic and transphobic hate crimes surge in England and Wales

06.15 Extinction Rebellion protesters stop rush-hour traffic in London

06.15 Hong Kong leader suspends extradition bill amid protest pressure [1:37 video]

06.15 The US must stand with the people of Hong Kong [But this attacks Xi's authoritarianism, which Trump is most envious of for himself...]

06.14 As Angus Taylor ducks, weaves and dithers, China zooms past

06.13 What does it mean to be genetically Jewish? [Doing a mental dance with archanery: could a significant number of Russians and Palestinians be intentionally included or excluded as genetically Jewish? And why would Israel do this?]

06.13 Two oil tankers struck in suspected attacks in Gulf of Oman

06.13 Theresa May’s carbon emissions plan will fail if the chancellor remains complacent

06.12 Hong Kong: police use rubber bullets as protesters vow 'no retreat' [1:34 video]

06.12 French medics warn health service is on brink of collapse

06.12 Leaked documents reveal Russian effort to exert influence in Africa

06.12 Extending the US Embargo on Cuba & Hurting the People [Doing what's cruelest]

06.12 Annexation Without Citizenship Is Apartheid

We are a non-profit Internet-only newspaper publication founded in 1973. Your donation is essential to our survival.

You can also mail a check to:
Baltimore News Network, Inc.
P.O. Box 42581
Baltimore, MD 21284-2581
This site Web

Public Service Ads: