Word: borrower
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Dates: during 1970-1979
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Under the plan, a professor buying a $50,000 home would borrow 70 per cent of the money from a commercial bank at regular interest rates, now between 8 and 9 per cent. The purchaser would provide 15 per cent of the money himself, and the University would provide the other 15 per cent at 4 per cent interest...
...major reason is that the climb in the prime has not yet discouraged ravenous loan demand from business. No reason why it should, either: strangely enough, borrowing at a 9½% prime is potentially profitable for some businessmen. Other interest rates have shot up even higher, including those that the bankers themselves must pay to attract deposits. As a result, last week a big corporation could borrow from the bank at the 9½% prime, then lend the same dollars right back to the same bank at a profit by buying a 90-day certificate of deposit (CD) yielding...
Thus might a hip Polonius summarize the frenzied rise in U.S. interest rates. Last week the biggest U.S. corporations had to pay a record-and painful-8¾% to borrow from banks.* Some banks will raise that "prime" rate further to 9% this week; it could go higher still, perhaps to 9½% in the fall. The banks in turn had to pay as much as 10.3% to get money to lend; that was the highest rate offered last week to depositors who would buy $100,000 certificates of deposit (CDs). While borrowers and lenders alike groaned, savers rejoiced...
...tight money can be seen in Europe, where interest rates are higher than in the U.S. British banks now charge as much as 12% on business loans, and West German banks had to pay interest equal to 35% a year on overnight loans from each other. Unable to borrow, four German real estate developers recently went belly up, and Economics Minister Hans Friderichs coldly said that collapses of "unsoundly financed" firms are "absolutely in the sense of our policy." No one expects the Federal Reserve to go that far; Burns in 1970 proved entirely willing to expand the money supply...
...intervention-apparently repudiating the tired U.S. position that the dollar's weakness is Europe's problem, not America's. At midweek the Federal Reserve agreed with foreign central bankers to increase by 50% (to $18 billion) the amount of foreign currency that the U.S. can borrow under a longstanding "swap" arrangement for use in buying up surplus dollars abroad. Finally, West German financial officials reported that there had been some limited official dollar buying-perhaps $100 million of it-by the U.S. and European governments. Result: the dollar rose in foreign money markets for three straight days...