Banking 15: More on the Fed Funds Rate
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- Опубликовано: 11 сен 2024
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More on the mechanics of the Federal Funds rate and how it increases the money supply.
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Sal this series is pure Gold thank you so much and God bless your fam forever!
@rogersat In other words, there are no discretionary OMOs, and they cannot be used to change the FFR. They are only used to defend it. Of course, this changes in a regime where you have interest on reserves, where the IOR automatically sets the FFR.
Where does the liability come from when the Fed prints money? Who are they liable to and why?
my uncle would be a big time operator if the federal reserve only bought from him 😆😆👏💯💯✌✌ Sal's uncle keepin' it real
Thankyou very much Brother, Nicely explained😊
Yes, by doing so the amount of money the fed receives upon selling the treasuries they hold are 'essentially out of the economy' as it is no longer in circulation. The money will stay in reserve until it is needed to buy back the securities, or exchanging it into other currencies in order to stabilise the economy.
(read my previous response first) Ever since the implementation of the Fed, crashes have INCREASED, and the dollar has lost 96% of it's purchasing power. In one of your other video's, it seemed to me that you were making the argument that if we didn't has this inflation or this flexible money supply, then we wouldn't have been as productive. But there are plenty of times in history when economies have grown greatly with a non-flexible money supply like gold and silver.
There has always been credit money even with gold or bimetallic standard system the money supply wasn't maybe as flexible as today but in noway inflexible by any means
Very Very interesting. Congratulations and Thank You. On the European Central Bank web site there are some very interesting videos showing that the ECB directly lends money at minimum discount rate (they call it beat rate)
to commercial banks when they need it. Is it just a different way on how a central bank can work, or they just don't want to get too technical?
Many thanks.
I have been watching your videos on the Federal Reserve and you said that Congress gets the profits the Fed makes. I just wanted to point out that the private banks that hold stock in the Fed get a 6% dividend*. So tax payers are having to pay off the private banks for no good reason. And I say "for no good reason" because the Fed has not helped to stabalize the economy.(continued)
*the Fed's website under Q and A
How much does Congress get and how?
I love you Sal, you make me smart.
What about the overnight market? Doesn't the central bank lend money to the commercial banks at the target rate to affect the interest rates? Treasuries aren't even involved here.
so just to clarify, when the banks and the fed meet up to 'decide on the fed funds rate', they dont actually decide on it per se? i.e. they are not deciding on the exact rate percentage number, but on the target number only? i.e. and it is up to the banks to contract and arrive at an agreement via open market lending contracts/transactions based on demand and supply to arrive at said target rate?
but if this were the case...wouldnt this be a roundabout way of going about it? why not just set the number at x% instead of going through all the trouble of buying treasury bonds/printing more money? the banks meeting to agree with it implicitly know about the target rate anyway?
Idk if they actually meet and decide on it that way.
Capitalism as opposed to a dictatorship is why.
the net effect being an increase in real and potential productivity and in turn real wealth.
..make more loans, while making all their outstanding loans LESS valuable in real terms. The net effect being ..what?
who are the largest holders of treasuries? Its assumed the guy selling his treasury is going to put the money in the bank he got from selling the treasury. What if he doesnt? I guess that still increases the money supply. I think so
If say its a 10pct reserve ratio, say for each $1 deposit. The bank can loan out 90cents. Right? And not $10?
Cuz 10% from $1 is 10cents which is the amt thr bank must have. Then the remaining 90% it can loan out, i.e. 90cents.
Or am I confused?
Why would the bank ever loan cash to other banks at 5% ? It could instead have it sit in their vaults and loan 10 dollars (assuming a reserve ratio of 1/10) at a higher rate?
yes
keep them up plz
Why does uncles deposit go to na asset site? Hhoudn't it go to liabilities site?
what are the objectives of the fed
youre the man
why didn't you put the equity block in the asset column since equity is asset?
Equity is not an asset. The company owes investors.
but when the fed prints money, although they are not directly stealing from your uncle, they are certainly stealing from everyone else who owns any dollar bills (or checking accounts specified in units of dollars). Inflation happens. The fed has increased its wealth without doing work, and people have lost wealth without deserving to lose its wealth.
Same here.
Thanks (y)
@rogersat And to reiterate, the money multiplier is a myth, so you have that totally wrong. It's archaic economics with a supremely wrong and primitive understanding of how banking works. Bank lending is not reserve constrained. It is only capital constrained. When banks want to lend and they find a creditworthy customer, they will lend. They will then go to the interbank market or the Fed, and they will find them. OMOs may be necessary. But the Fed has to supply them to maintain the FFR.
Where can I read more about how the money multiplier is a myth?
assets= libaliets + equity
Sal, you are an incredibly smart guy, but you have this whole process wrong. The Fed does not change the FFR using OMOs, and the money multiplier is a myth. This is what the actual technical literature shows, both empirically and through logic. The Fed changes the FFR purely through announcements and it always supply reserves to meet demand (bank lending isn't reserve constrained). That's what it means to have a target FFR. Too many reserves drops the FFR to 0, and too few to the discount.
it was a 6percent
@rogersat So your whole story falls apart.
Sal, I have some news that may be unsettling. Your uncle may be the country of China.
dollar bills