What will make the LIBOR rate come down and what indicators should we look for to make it go down to “normal” levels?
Question/Comment: Mr. Solman: You are one of those few who makes economics as interesting as Paris Hilton’s love life (just kidding!) to the ordinary American. The LIBOR rate is higher than the 15-year mortgage rate right now. What will make it come down and what indicators should we look for to make it go down to “normal” levels? Thank you.
Paul Solman: Thank you for the Paris Hilton comparison, Maya, though America begs to differ. Enter “Paris Hilton” on YouTube and the first three videos have 77,000, 9.8 million, and 1.9 million views respectively. Enter my name, and you get 1961, 7441 and 559. Of course, mine are NewsHour segments, and tend to be a little short on skin.
As to LIBOR, it’s the “London Interbank Offered Rate,” the international rate charged by one bank to another for lending money (in London, obviously), as Maya clearly knows. There are different LIBORs for different lengths of time – one month, three month, six month, one year. Right now, though, all are LOWER than a 15-year mortgage in the U.S. Presumably, that’s because short-term interest rates have dropped, due to the Fed’s initiative, but long-term rates have NOT. Presumably, THAT’S because there’s now an expectation of greater inflation in the future, because the Fed’s creating more money. There are other factors too, though. But just at the moment, I think neither of us may have time for them.