digital emunction

You’ve got to appreciate this little spot of self-aware meta-narcissism in Michael Powell’s NYT profile of Barack Obama today, a nice example of the straight-faced Times humor that Hendrik Hertzberg called out a few weeks back:

One of the curiosities about Mr. Obama is his professed lack of interest in the writers who pore over that life, trying to deconstruct his fractured family and geography. He claims not to read profiles that pile high in his plane.

There’s a pretty surprising mistake in today’s NYT story about yesterday’s interest-rate cut. The offending sentence comes in the second paragraph of Steven R. Weisman’s article:

The Fed’s action brought the federal funds rate — the rate it charges banks for overnight loans — to 2 percent, from 2.25 percent, the lowest level since November 2004.

The problem is that clause between em-dashes. The “rate [the Fed] charges banks for overnight loans” is not the federal funds rate, it’s the discount rate. The federal funds rate is the rate that banks charge each other for overnight loans, which rate the Fed is able to control through open-market operations.

As the headline of this post indicates, I was about to put this down to a brief slip of editorial attention, but looking back through the NYT archive, it looks like a fairly common error on the paper’s part. Here’s a similar sentence from an article Weisman wrote a few days ago:

The committee also lowered the federal funds rate, the rate it charges banks for overnight loans, by three-quarters of a point, to the current 2.25 percent.

And here’s another from an article in March, this one written by Edmund L. Andrews:

The central bank lowered its federal funds rate — the rate it charges banks for overnight loans — by three-quarters of a percentage point, to 2.25 percent, and left the door open to additional rate cuts in the months ahead.

In case you don’t trust me on this, here’s how Reuters (correctly) described the federal funds rate in a story about yesterday’s cut:

The central bank’s action takes the bellwether federal funds rate target, which banks charge each other for overnight loans, to 2 percent — the lowest since December 2004.

And for good measure, here’s the AP’s version:

The latest Fed move brought the federal funds rate — the interest that banks charge each other — down to 2.25 percent, the lowest since late 2004.

An article in last Wednesday’s NYT included a pretty remarkable statistic. Steven R. Weisman cited Diana Farrell, director of the McKinsey Global Institute, who estimates that petrodollars have held American interest rates three-quarters of a percent lower than they would have been otherwise.

The macroeconomics behind the rate supression are simple—more available dollars = more available credit = lower interest rates—but consider for a moment what it means in real terms. Wednesday’s NYT quoted the 30-year fixed mortgage rate at 5.80%, which means that a homeowner with a $300,000 mortgage would pay $1760/month. Now let’s assume that Farrell is right about the 0.75% suppression. Without the lower credit made possible by petrodollars, the same homeowner would be looking at a 6.55% interest rate, which translates into a $1906 monthly payment. The difference, then, turns out to be $146 per month, or $1,752 per year. Which means that the mortgage of our fictional American homeowner is being effectively subsidized by oil money to the tune of 8.3% overall. And that’s not saying anything about all of the other places the interest-rate suppression affects our lives (credit cards, car loans, etc.).

The troubling thing about this oil subsidy—for Americans, anyway—is not that it’s happening but that it could disappear someday very soon. [Read more]