Understanding The Federal Reserve - Khan Academy

[Dusty Bake Activate]

1) so you think our economy is fukked up because of ignorance on the part of the government? no. you even said yourself this is a widely coordinated effort amongst many agencies to polarize the wealth in this country... so exactly what part is conspiracy and what part is theory?

I think that the prominence of supply-side and neoliberal economic ideas and how they've managed to gain acceptance in government as well as the resulting corporate control of the political and legal system are largely responsible for the increasing wealth gap. It's flawed economic theory that got en vogue combined with corporate greed imo. And I think the fed plays a role in this as well through the creation of bubbles and their incestuous relationship with the big banks. And there's a lot I don't understand. That doesn't mean I have to create boogeymen to explain what I haven't yet learned.

Do I think that the federal reserve can manipulate the economy to do whatever they want and that they are malicious actively trying to destroy the economy? fukk no, and no serious economist in the world thinks so either.

2) i said repeatedly the answer is to get back into manufacturing, producing goods and services. next time listen

But how do you accomplish this? What are your proposals and solutions to getting back to being a producing manufacturing economy as opposed to one that relies heavily on service, consumption, and debt?

And the initial question once again, is what changes would you make to the MONETARY system? If you were running the central bank, or even if you wanted to abolish central banking and propose a different means on monetizing the economy, what would you do different than what the fed is doing now? You seem to not be able to answer that question.

3) i did not, in any way, shape, or form, imply or say anything about not understanding economics. again, stop making shyt up

Higher Learning Podcast Episode 1 - The Coli

1:07:55 HHL4E: "Is there any economist beside yourself you would listen to?"

Leyet: "I'm not an economist, I'm not familiar with mainstream economics."

You don't understand economics, bruh. You just read some shyt about the fed from some biased sources but you haven't grounded yourself in the fundamentals, so you have a very limited scope on the broad topic of economics. It's pretty clear even without you saying that.

We're all trying to learn. If you're really truly trying to learn instead of just hearing yourself talk, you could be a bit more humble and less defensive. That stuff you were saying about economics is a science and the fed can make the economy do whatever they want it to do is nonsense. Economics doesn't work that way. Economics is a soft science, it's not physics. You can't do controlled experiments in economics that will inevitable lead to the same outcome, as you can do in biology, chemistry, or physics. There are competing economic theories that mountains of material has been published on, and are debated on in academia on a daily basis dating back centuries.. There is not only one economic theory.

4) there are several egg head muthafukkas who think the fed conspiracy is bullshyt and there are several egg head muthafukkas who dont think the fed conspiracy is bullshyt, now why is that?

Point 'em out then. Let's hear this list of distinguished academics with educations in economics who buy into your idea that the fed can literally control the economy and create whatever outcome they want and they're purposely trying to destroy it.

 

[ogc163]

I'm listening to this again..."Foreign entity, run by a foreign entity"

 

[franknitty711]

Great thread for someone like myself who hated Macro-Economics in college and needed a basic summary of how the Fed Works with other banks.

 

[ogc163]

3 books I would suggest to get an understanding of the theoretical foundations of modern central banking are...

The Debt-Deflation Theory of Great Depressions by Irving Fisher
http://www.amazon.com/The-Debt-Defl...&sr=1-1&keywords=irving+fisher+debt+deflation

Millionaire : The Philanderer, Gambler, and Duelist Who Invented Modern Finance (About John Law) by Janet Gleeson
Amazon.com: Millionaire : The Philanderer, Gambler, and Duelist Who Invented Modern Finance (9780684872957): Janet Gleeson: Books

Lombard Street A Description of the Money Market by Walter Bagehot
Amazon.com: Lombard Street A Description of the Money Market (9781461072096): Walter Bagehot: Books

 

[zerozero]

I'm listening to this again..."Foreign entity, run by a foreign entity"

lol Leyet has a perfect talent for sending his voice to a stressed high pitch without making it squeaky

 

[Dusty Bake Activate]

@being able to hear leyet banging on the table through his mic repeatedly. I didn't even notice it the first time.

 

[Economics]

I see this thread sliding a bit and some confusion. If any of you are serious about learning Money and Banking and The Fed relations to it all and its functions just get this book. The Economics of Money, Banking, and Financial Markets by Frederic S. Mishkin. Its a textbook that is taught in many Unis. Its on its 10th edition now so I'm sure y'all not trying to drop $150+. So if you want you can rent it from chegg.com for a few months and absorb what's in there and test yourself with the questions or find a pdf version online . Or get the old edition on ebay like the 9th or 8th for the cheap (much shouldn't have changed just current topics).

Even with the nontextbook books and youtube links you're getting basic stuff about financial economics and The Fed. I fear some may start appealing to authority as well looking at this economist or the next because he's an "authority" like he has the absolute answer, which is always a no no. That book will get in depth. I can find a graduate type level book for y'all later. Like the other poster said economics is a soft science and the further you get in macro the more abstract/philosophical/ideological it will get. Mistaking beauty for truth will have people debating in circles its what sort of turned me off to the field and started to go towards other fields more concrete with absolute answers myself. I'll try to find a pdf for y'all if I can.

 

[Serious]

Program Description

In the aftermath of the worst financial crisis since the Great Depression, NOVA presents "Mind Over Money"—an entertaining and penetrating exploration of why mainstream economists failed to predict the crash of 2008 and why we so often make irrational financial decisions. The program reveals how our emotions interfere with our decision-making and explores controversial new arguments about the world of finance. In the face of the recent crash, can a new science that aims to incorporate human psychology into finance—behavioral economics—help us make better financial decisions?

Video: Mind Over Money | Watch NOVA Online | PBS Video

 

[newworldafro]

Haven't read all the comments yet............but I will

Good job OP,

Have yall talked about the fact about how "this entity" was created literally almost hundred years ago. How a bunch of bankers went down to Jekyll Island off the coast of Georgia, used fake names so none of the workers would know who they were and set up the F. R.. Then Congress voted on it after all the rest of the Congress folks had left for X-mas break, so it was just a few people that voted on its implementation.

This is the short less complex version, you could give to a high school student or a lay person, like myself, that gets confused by this financial/banking jargon.

"The American Dream Film-Full Length"




This is the LOOONG ROAD understanding the F. Reserve, but its worth a listen...........the HISTORY IS SOOO DEEEEP.....

"History of the Federal Reserve (Money Masters)"

 

[TLR Is Mental Poison]

Can someone explain how paying interest on bank reserves incentivizes lending?

If I have $1000 in the bank, and the bank is paying me just to have it, why would I take the risk of lending it out and possibly not being paid back on it?

Otherwise, great thread

 

[714562]

Can someone explain how paying interest on bank reserves incentivizes lending?

If I have $1000 in the bank, and the bank is paying me just to have it, why would I take the risk of lending it out and possibly not being paid back on it?

Otherwise, great thread

With interest rates at 0% (or really at a negative percentage because of fiscal maneuvering), holding cash and lending are the same thing. You earn ZERO interest on the money. So paying for excess reserves is better than literally nothing.

Even if a bank might be getting paid to hold extra reserves, that won't stop them from lending to another bank if they smell safe profit. They'll get their money's worth from the loan @ the discount rate (which is HIGHER than the money on excess reserves) and the other bank will too, provided they use the loan wisely (and get their excess reserve money).

In other words, the rate of interbank lending will be set between the price paid on holding excess reserves and the rate those banks can get from the fed in the short term . The latter rate is gonna be higher than the former, dig? So there's room for the rates on the loan to be higher than just holding excess money. But because interest rates all around the country are so low, banks need to make something on their reserves in the meantime. Especially after they've eaten so much shyt. Low rates are good for lendees, not lenders.

 

[TLR Is Mental Poison]

With interest rates at 0% (or really at a negative percentage because of fiscal maneuvering), holding cash and lending are the same thing. You earn ZERO interest on the money. So paying for excess reserves is better than literally nothing.

Right, this I get.

Even if a bank might be getting paid to hold extra reserves, that won't stop them from lending to another bank if they smell safe profit. They'll get their money's worth from the loan @ the discount rate (which is HIGHER than the money on excess reserves) and the other bank will too, provided they use the loan wisely (and get their excess reserve money).

This I get too, they are going to put their money where they will get the biggest return.

In other words, the rate of interbank lending will be set between the price paid on holding excess reserves and the rate those banks can get from the fed in the short term . The latter rate is gonna be higher than the former, dig? So there's room for the rates on the loan to be higher than just holding excess money. But because interest rates all around the country are so low, banks need to make something on their reserves in the meantime. Especially after they've eaten so much shyt. Low rates are good for lendees, not lenders.

I guess this is where I'm confused. Why don't the banks just put all of their reserves into T-bills? IIRC those have higher yields than the Fed reserve credit AND overnight lending. And theres no shortage of them, as evidenced by the Fed being their biggest buyer. Plus, why is it the Fed's obligation to make sure the banks are earning a return on their reserves? Why not just raise rates?

From a layman's POV it just seems like the system is rigged. The very fact that the Fed loans to banks for basically nothing, and the banks go out and loan that money for a profit is enough to be angry about.

 

[714562]

Why don't the banks just put all of their reserves into T-bills? IIRC those have higher yields than the Fed reserve credit AND overnight lending. And theres no shortage of them, as evidenced by the Fed being their biggest buyer. And theres no shortage of them, as evidenced by the Fed being their biggest buyer.

Well, yes. Some of the money goes toward buying T-bills. But the rate on government debt -- particularly T-bills which mature in one to three months- still sucks. So why would they buy all T-bills? Government debt isn't a magical pool of mana. Newly issued debt is bought at auction and there'll only be so much of it on the open market. How could and why would you just convert everything to T-bills? Everyone wants a certain risk-free rate to cushion their investments...but ultimately it's still a crap yield compared to actually doing something with the money.

Plus, why is it the Fed's obligation to make sure the banks are earning a return on their reserves?

It is the Fed's obligation to make sure banks lend to each other. That is in the interest of our mutual prosperity. In a world where it's impossible to earn anything on any loans, nobody lends. As in, nobody lends to people like you when you need it. So the government set an artificial floor that encouraged hobbled banks to build up their reserves again.

Why not just raise rates?

Ha. Good joke. Raise rates? At a time when companies are still loathe to raise prices and people are still out of work? When the S&P's gains for the first half of the year have been wiped out just like last year and the year before? I'm thinking nah. Not significantly, anyway.

From a layman's POV it just seems like the system is rigged. The very fact that the Fed loans to banks for basically nothing, and the banks go out and loan that money for a profit is enough to be angry about.

I feel fine about it.

 

[TLR Is Mental Poison]

Well, yes. Some of the money goes toward buying T-bills. But the rate on government debt -- particularly T-bills which mature in one to three months- still sucks. So why would they buy all T-bills? Government debt isn't a magical pool of mana. Newly issued debt is bought at auction and there'll only be so much of it on the open market. How could and why would you just convert everything to T-bills? Everyone wants a certain risk-free rate to cushion their investments...but ultimately it's still a crap yield compared to actually doing something with the money.

Converting to t-bills seems to make a lot of sense to me. To start the quantity is not limited, for all intents and purposes- if it were, the Fed wouldn't have to buy what didn't get picked up by actual entities. Secondly, US debt and the Fed, safety wise, are essentially interchangeable. IOW if US debt is no good, neither is the Fed, so having different levels in faith for one or the other doesn't seem to make much sense.

Plus again, EVERYONE wants a certain risk free rate to cushion their investments. True, true. That includes me and you too. My question again is, why should the banks be GUARANTEED that certain risk free rate now all of a sudden? And how does ensuring that banks make money by just having money ensure they will lend it? That is 100% counterintuitive- if anything the blanket rate should be removed to force banks to lend, as that would be their only avenue to profitability + netting a return on their deposits. Thats how it is, at least, for the avg person or institution

It is the Fed's obligation to make sure banks lend to each other. That is in the interest of our mutual prosperity. In a world where it's impossible to earn anything on any loans, nobody lends. As in, nobody lends to people like you when you need it. So the government set an artificial floor that encouraged hobbled banks to build up their reserves again.

How is it impossible to earn anything on loans if the Fed doesn't pay interest on banks' reserves? Banks are making profits on loans, even the little overnight ones... that is how banks make profit

And why should one bank doing an overnight loan with another bank affect my ability to get a car loan, if I have demonstrated I have excellent credit and it is pretty much guaranteed the bank will make a profit on it?

Ha. Good joke. Raise rates? At a time when companies are still loathe to raise prices and people are still out of work? When the S&P's gains for the first half of the year have been wiped out just like last year and the year before? I'm thinking nah. Not significantly, anyway.

Heres the problem. Zero interest rates are unsustainable in the long term, but the longer we wait to raise them the more painful it will be. And again, the zero rate economy is only a recent phenomenon... for most of the US time in existence the central bank had rates well above zero, along with long periods of stability and prosperity. In fact, since we've dropped rates to zero, our economy has gone to shyt. So to a large degree, much of the shyt you're complaining about is caused indirectly by the low rates.

Not to mention, with rates being at zero, average folks AND banks are forced to invest in weirder, less stable/safe vehicles to net a decent return. The ONLY people benefiting from zero rates are BANKS. EVERYONE else loses.

 

[OsO]

tell me one thing the federal reserve can do to encourage domestic consumer goods manufacturing

for starters they can work in conjunction with the US government and impose laws and regulations that tax heavily when US corporations move production outside of the united states. and they can also help create land, tax, and general business subsidies to aid the new small local businesses that will be popping up to fill the demand.

hold all this US debt and be happy if the US economy gets weaker? Hell no

man this is nothing but a game of global politics. china is not our friend. england is not our friend. they want the throne just like any other country.

and right now both countries have the US by the balls. but the US still has resources, it still has assets, it still has a good economy compared to the rest of the world, and the US people are still consuming like crazy, so the US is a good piece to have in this game of global chess... our military is still one of the best in the world also.

but economically we've already been stabbed, we're just bleeding out slowly now. and when the dollar drops through the floor thanks to inflation everything will accelerate and those other countries we owe money to will seize our assets (actually they have already started). then we become an economic, military, and political proxy for these other nations as they sell us off piece by piece to the highest bidder... and that's how you get GOT! :smugmos:

so long story short, yes it will hurt other countries economically the shyttier our economy gets, but they will eventually recover, and the game will go on.

"Politics is war without bloodshed.
War is politics with bloodshed."
-The honorable Fred Hampton

...but that first quote proves that you don't.

Producing services is the opposite of producing industrial goods. That's why people differentiate between service economies and industrial economies. Literally, polar opposites. And we're already a service economy so...what are you like, even talking about?

the manufacturing jobs the US has now are usually not accessible to the common laborer. so all these manufacturing dollars we gettin are going to a small class of elite, educated people, as per the usual.

so saying we dont need working class manufacturing is absurd... are you seeing the devastation that has overtaken the working class? how many cities in the US have turned into depressing graveyards because our govt decided to make it easy and financially viable for corporations to take their production outside the US? detroit lookin like mad max beyond thunderdome

manufacturing has been the key to economic success since forever... this is common knowledge amongst so-called economists. step ya knowledge up

Do I think that the federal reserve can manipulate the economy to do whatever they want and that they are malicious actively trying to destroy the economy? fukk no, and no serious economist in the world thinks so either.

the economy is fukked up, and it didn't happen on accident. and the people and organizations responsible are not incompetent. so you can draw your own conclusions.

But how do you accomplish this? What are your proposals and solutions to getting back to being a producing manufacturing economy as opposed to one that relies heavily on service, consumption, and debt?

And the initial question once again, is what changes would you make to the MONETARY system? If you were running the central bank, or even if you wanted to abolish central banking and propose a different means on monetizing the economy, what would you do different than what the fed is doing now? You seem to not be able to answer that question.

copied from above: "for starters they can work in conjunction with the US government and impose laws and regulations that tax heavily when US corporations move production outside of the united states. and they can also help create land, tax, and general business subsidies to aid the new small businesses that will be popping up to fill the demand."

and we can add more from there

Higher Learning Podcast Episode 1 - The Coli

1:07:55 HHL4E: "Is there any economist beside yourself you would listen to?"

Leyet: "I'm not an economist, I'm not familiar with mainstream economics."

i said "1, im not an economist, and 2, im not familiar with mainstream ECONOMISTS."

the question was about economists, so my answer was in regards to economists.

i understand i said it quickly so i wont hold this one against you. but you have to forgive my rashness as you have a history of making shyt up that people say.

Economics is a soft science, it's not physics. You can't do controlled experiments in economics that will inevitable lead to the same outcome, as you can do in biology, chemistry, or physics. There are competing economic theories that mountains of material has been published on, and are debated on in academia on a daily basis dating back centuries.. There is not only one economic theory.

i fully understand that economics is not as much a hard science as say mathematics... but there are still economic principles than can be relied on time and time again to produce certain effects.... and manufacturing brings wealth is one of them.