Feds and interest rates

Good questions.

From the Wikipedia page on bank rate:

>Bank rate, also referred to as the discount rate in American English,[1] is the rate of interest which a central bank charges on its loans and advances to a commercial bank.

>Whenever a bank has a shortage of funds, they can typically borrow from the central bank based on the monetary policy of the country.

The Fed borrowing rate is the rate at which the biggest banks in the world borrow money from the Fed. These big banks are formally referred to as the primary dealers (PD).

The PDs have been borrowing money from the Fed at 0.x% for the last decade. Imagine having a credit card and the interest rate was 0.5% with an unlimited credit line. What would you do? Well, if you were smart, you would buy up real income producing assets. Electrical companies. Power plants. Waste processing facilities. Industrial level factories that you have funded basically with free money.

Well, because of this, there is obviously a lot of money flowing around (liquidity, if you didn't know) and prices in pretty much everything that is in the .1% price range has skyrocketed. Super yachts, rare art and especially stocks have all gone in the last 10 years while median household income is sitting around 2000 levels.

So, now what is happening is the Fed is just slightly closing the spigot. Like, .25%, and the entire market freaks out. This is how artificial markets are right now because the currency by which value is calculated (USD) theoretically has an infinite supply. So basically Wall Street is pissed because they don't have their free money anymore.

Hope that helps.

>i thought trading on the margin was banned after 1929
Not banned but the requirements have been upped significantly. In the 1920's you could trade on 90% margin meaning you only needed to deposit 10% of the value. This means a 10% drop would wipe out your investment and force selling. Nowadays, the minimum margin requirement is 25% and most investors (especially retail) need to hold more funds.

brainlet explanation
youtu.be/PHe0bXAIuk0

THIS GUY FUCKS

>Except that holding cash is a liability
Money demand is a thing

>Your savings rate will never exceed the rate of inflation
Just utterly incorrect

>Inflation is the result of excess money supply
Pray tell what you mean by "excess money supply." An increase in the rate of credit creation relative to growth in goods and services is not the only cause of inflation

>Reducing the money supply is how inflation is countered
This hasn't been true for almost 40 years

> It's a private entity operated by foreign interests, whose agenda is often at odds with the USA.
Absolutely tinfoil

>Then you're probably a clueless leftard, because you actually buy into this economic pseudo-science that has been debunked by reality time and time again.
I am an economist

>>Keynsian economics supports that idea (I like keynes so i support it to an extent too) but recent (post ww2) evidence suggests its more complicated than that
>Then you're probably a clueless leftard, because you actually buy into this economic pseudo-science that has been debunked by reality time and time again.

When will you /pol/tards fuck off. Literally every single piece of empirical data is in contradiction with your neolithic economics.

but muh basic economics can refute published studies with data backing it

Yeah but we’re overdue.

People don’t save cash in banks, they lend the US government the cash. US treasuries are almost universally considered the safest investment. Raising the rate on those encourages people to reduce speculation on Stocks.

The bizarre thing is, that this is literally happening because more people are working and have more money to spend.
This "new" money is inflating prices and feds are trying to "correct" this by taking making money more expensive and trying to get the "new" money out of the circulation by creating an incentive to save (higher interest rate).
Higher interest rates mean that current stocks could lose their value compared to "riskless" investments, (return now > interest now, new interest > return now). So the fear of missing out on better investments in the future + the fear of actually losing money is driving investors to sell their shit.

People choose to save over spending
Depressed spending = depressed production = depressed income = less spending = even less production etc

>Why do feds raise the interest rates?
The real question is what even is an interest rate and why do the feds LOWER interest rates.

This.
I'll throw this in here: abnormally low interest rates cause real estate bubbles because 1. duh more mortgages and 2. real estate holds spending power better than inflationary currency, so real estate develops secondary exchange value.

>holding cash is a liability

He is talking about treasuries.

>inflation is the result of excess money supply

That is a simply view of inflation. The quantity theory of money that is mostly associate with Friedman says that MV=PQ, M being money supply, V being velocity of money, P being price level and Q being quantity of goods. This basically means the amount of money equals the prices of all goods, so it is a pretty simple statement. Friedman said if we assume quantity of goods is mostly fixed, velocity of money is mostly fixed to spending habits and so doesn't change either, then an increase in the money supply will be mirrored by an increase in prices.

These assumptions aren't necessarily born out in all cases. For instance, you can look at the Fed's M2 charts right now and see that the money supply exploded after 2008, but prices didn't explode. Why is that? If you check the velocity of money charts, you'll see it dived. The reason is because the velocity of money is relative to the size of the money base. It isn't fixed, so if the money supply increases dramatically in the banking sector but they don't actually have profitable loans to give out (and banks want to profit), then they won't give out loans, so people's spending habits may not have changed much but they aren't actually cycling through the same proportion of the total money supply they were before. Furthermore, prices are often actually sticky because industry is working under its capacity. If you check our capital productivity charts, you'll see that the Fed also estimates we are at something like 60-70% capacity of our current capital assets. Fluctuations in demand (i.e., the amount of money circulating) usually just gets absorbed in the ability to produce more goods at the same price to stay competitive, depending on the industry.

The federal reserve lowers interest rates to easy up liquidity so there will be tons of malinvestment due to easy credit, they do this to create an economic bubble.

When the bubble is big enough for "the owners", they increase interest rates to pop it.

>ELI5
>reddit spacing
Opinion disgarbaged

Can anyone debunk this information?

I love this post, it's so clear, please tell me it isn't a lie.

Just as an aside, if you actually look at the CPI for last year you'll see that, by size of weight:

Housing is up
Commodities are down
Food is up
Energy is up

On a monthly basis food and energy can go up or down, most people know they're left out of core because of their volatility. Energy is up like, 16% for the year for instance, but nothing else is actually up by close to 16% so that seems to imply that energy prices inflated through supply issues. Housing always rises at a steady clip. Why is that? Because rent is usually steadily increased. Of course, it is also the heaviest weight by far on the index for people's spending, which makes sense. So if we know that people's biggest expense is steadily increasing rents, and people need to pay those rents, then it seems like what inflates the cost of labor on average is going to be the rising rate of rent. What determines rents? Property values. What determines property values? The amount of credit available to make the relatively large purchase of property. The bank determines how much demand is in the market and continues to extend loans that allow prices to rise on property rates.

So ultimately it probably comes around to credit, banks, rentiers and interest rates that drive the steady march of inflation. Big movements in inflation are probably going to be either supply issues or demand issues. Japan has a deflation problem, but that is probable because Japan's population is sinking so they're losing demand. Venezuela has inflation because their economy was based on oil prices, which fell, and the government strangled business, so supply in general fell.

Tell me about the federal reserve. Why does it control the debt?

To slow borrowing. interest rates are basically one of the levers reserve banks use to control inflation