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The Federal Reserve leaves the

johngriswald
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12/16/2009 12:46:24 PM
Posted: 6 years ago
The Federal Reserve today decided to keep its key rates unchanged at record-low levels.

The central bank did hint that it expects rates to move up -- but not anytime soon. The Fed doesn't want to do anything now to jeopardize the economic recovery that began in summer.

Stocks were higher and interest rates off slightly ahead of the decision, but the rally faded after the announcement.

The Fed's rate-making body, the Federal Open Market Committee, left the target for its key federal funds rate at zero to 0.25%.

Your thoughts?
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Reasoning
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12/16/2009 12:49:01 PM
Posted: 6 years ago
At 12/16/2009 12:46:24 PM, johngriswald wrote:
The Fed's rate-making body, the Federal Open Market Committee, left the target for its key federal funds rate at zero to 0.25%.

Your thoughts?

That is ridiculously low.

Do they want banks to lend or not to lend? They are sending mixed signals, they are making cheap credit and then paying banks not to lend. I don't get it.
"What we really ought to ask the liberal, before we even begin addressing his agenda, is this: In what kind of society would he be a conservative?" - Joseph Sobran
wjmelements
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12/16/2009 12:51:13 PM
Posted: 6 years ago
The thing about this interest rate is that savings can not earn any more than it and loans cannot be less than it for simple market forces. The only thing keeping this interest rate will do is maintain the bubble. The moment it is risen, the economy will crash again.
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wjmelements
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12/16/2009 12:51:55 PM
Posted: 6 years ago
It's also pretty dumb to have an interest rate lower than the inflation rate.
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johngriswald
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12/16/2009 12:53:05 PM
Posted: 6 years ago
At 12/16/2009 12:49:01 PM, Reasoning wrote:
At 12/16/2009 12:46:24 PM, johngriswald wrote:
The Fed's rate-making body, the Federal Open Market Committee, left the target for its key federal funds rate at zero to 0.25%.

Your thoughts?

That is ridiculously low.

Do they want banks to lend or not to lend? They are sending mixed signals, they are making cheap credit and then paying banks not to lend. I don't get it.

Apparently you fail to understand what the "interest rate is"

It's the rate that the Fed charges to Banks, not the rate Banks charge to consumers.
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johngriswald
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12/16/2009 12:54:07 PM
Posted: 6 years ago
At 12/16/2009 12:51:55 PM, wjmelements wrote:
It's also pretty dumb to have an interest rate lower than the inflation rate.

OLR =/= Interest rate.

Interest Rate = Inflation rate + OLR + Profit % from banks
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wjmelements
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12/16/2009 12:55:43 PM
Posted: 6 years ago
At 12/16/2009 12:54:07 PM, johngriswald wrote:
At 12/16/2009 12:51:55 PM, wjmelements wrote:
It's also pretty dumb to have an interest rate lower than the inflation rate.

OLR =/= Interest rate.

Interest Rate = Inflation rate + OLR + Profit % from banks

So that number factors in interest rate? You're saying that What the Fed really charges is (assuming 4.00% inflation) is 4.25%?
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johngriswald
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12/16/2009 12:58:39 PM
Posted: 6 years ago
At 12/16/2009 12:55:43 PM, wjmelements wrote:
At 12/16/2009 12:54:07 PM, johngriswald wrote:
At 12/16/2009 12:51:55 PM, wjmelements wrote:
It's also pretty dumb to have an interest rate lower than the inflation rate.

OLR =/= Interest rate.

Interest Rate = Inflation rate + OLR + Profit % from banks

So that number factors in interest rate? You're saying that What the Fed really charges is (assuming 4.00% inflation) is 4.25%?

No.

This is how the banking system works.

Banks don't have trillions in their vaults.

Thus when a person needs a loan they borrow from the Federal Reserve.

That federal reserve charges a fee for their loan called the Overnight Lending Rate.

That is what the fed changes. That gets passed onto the consumer.

The bank determines the interest rate they loan by a simple equation

Interest Rate = Overnight Lending Rate + Inflation Rate + Profit on the loan.
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johngriswald
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12/16/2009 12:59:23 PM
Posted: 6 years ago
At 12/16/2009 12:58:39 PM, johngriswald wrote:
Thus when a bank needs a loan they borrow from the Federal Reserve.

Made an error. my bad
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wjmelements
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12/16/2009 1:00:15 PM
Posted: 6 years ago
At 12/16/2009 12:58:39 PM, johngriswald wrote:
At 12/16/2009 12:55:43 PM, wjmelements wrote:
At 12/16/2009 12:54:07 PM, johngriswald wrote:
At 12/16/2009 12:51:55 PM, wjmelements wrote:
It's also pretty dumb to have an interest rate lower than the inflation rate.

OLR =/= Interest rate.

Interest Rate = Inflation rate + OLR + Profit % from banks

So that number factors in interest rate? You're saying that What the Fed really charges is (assuming 4.00% inflation) is 4.25%?

No.

Contradicting yourself. You just said that what the fed is charging for interest also includes inflation.

This is how the banking system works.

Banks don't have trillions in their vaults.

Thus when a person needs a loan they borrow from the Federal Reserve.

That federal reserve charges a fee for their loan called the Overnight Lending Rate.

That is what the fed changes. That gets passed onto the consumer.

The bank determines the interest rate they loan by a simple equation

Interest Rate = Overnight Lending Rate + Inflation Rate + Profit on the loan.

I know how the banking system works. You don't have to explain it to me. Stop assuming you're the only one that understands the federal reserve system.
in the blink of an eye you finally see the light
johngriswald
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12/16/2009 1:01:48 PM
Posted: 6 years ago
At 12/16/2009 1:00:15 PM, wjmelements wrote:
Contradicting yourself. You just said that what the fed is charging for interest also includes inflation.

No, I said that's what the banks do.

I know how the banking system works. You don't have to explain it to me. Stop assuming you're the only one that understands the federal reserve system.

Well if you know how it works, then simply ignore my explanation and allow others who do not know to profit from it.
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wjmelements
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12/16/2009 1:04:41 PM
Posted: 6 years ago
At 12/16/2009 1:01:48 PM, johngriswald wrote:
At 12/16/2009 1:00:15 PM, wjmelements wrote:
Contradicting yourself. You just said that what the fed is charging for interest also includes inflation.

No, I said that's what the banks do.

: At 12/16/2009 12:54:07 PM, johngriswald wrote:
At 12/16/2009 12:51:55 PM, wjmelements wrote:
It's also pretty dumb to have an interest rate lower than the inflation rate.

OLR =/= Interest rate.

Interest Rate = Inflation rate + OLR + Profit % from banks


Say what? You specificially replaied to my post saying that the federal reserve shouldn't charge an interest rate lower than the inflation rate by stating that the reserve rate included interest rate.

I know how the banking system works. You don't have to explain it to me. Stop assuming you're the only one that understands the federal reserve system.

Well if you know how it works, then simply ignore my explanation and allow others who do not know to profit from it.

Then don't imply that I don't know it by posting it in a reply to me.
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johngriswald
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12/16/2009 1:16:10 PM
Posted: 6 years ago
At 12/16/2009 1:04:41 PM, wjmelements wrote:
Say what? You specificially replied to my post saying that the federal reserve shouldn't charge an interest rate lower than the inflation rate by stating that the reserve rate included interest rate.

Yes I did reply to your post. Mainly explaining that the banks themselves factor in the interest rate. Why? Because its the banks that have the long term loans, not the federal reserve. The federal reserve itself doesn't really care about the inflation rate mainly because the federal reserve is simply using the OLR as a tool to increase liquidity in the market. By lowering the OLR past inflation, it's giving banks an incentive to lower their rates thus increasing borrowing and increasing spending.

Then don't imply that I don't know it by posting it in a reply to me.
Then don't imply that the Federal Reserve cares about losing money to inflation.
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wjmelements
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12/16/2009 1:20:34 PM
Posted: 6 years ago
At 12/16/2009 1:16:10 PM, johngriswald wrote:
At 12/16/2009 1:04:41 PM, wjmelements wrote:
Say what? You specificially replied to my post saying that the federal reserve shouldn't charge an interest rate lower than the inflation rate by stating that the reserve rate included interest rate.
Blah off-topic about banks. Not talking about banks.

The federal reserve itself doesn't really care about the inflation rate mainly because the federal reserve is simply using the OLR as a tool to increase liquidity in the market. By lowering the OLR past inflation, it's giving banks an incentive to lower their rates thus increasing borrowing and increasing spending.

The federal reserve then is basically charging a negative interest rate (after inflation).
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johngriswald
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12/16/2009 1:22:29 PM
Posted: 6 years ago
At 12/16/2009 1:20:34 PM, wjmelements wrote:

The federal reserve then is basically charging a negative interest rate (after inflation).

And what's wrong with that?
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wjmelements
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12/16/2009 1:24:30 PM
Posted: 6 years ago
At 12/16/2009 1:22:29 PM, johngriswald wrote:
At 12/16/2009 1:20:34 PM, wjmelements wrote:

The federal reserve then is basically charging a negative interest rate (after inflation).

And what's wrong with that?

It's just asking for hyperinflation.
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johngriswald
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12/16/2009 1:25:40 PM
Posted: 6 years ago
At 12/16/2009 1:24:30 PM, wjmelements wrote:
It's just asking for hyperinflation.

Sorry, talk to me about hyperinflation when the consumers start spending and we're not scared about deflation.
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Reasoning
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12/16/2009 1:29:11 PM
Posted: 6 years ago
At 12/16/2009 12:53:05 PM, johngriswald wrote:
At 12/16/2009 12:49:01 PM, Reasoning wrote:
At 12/16/2009 12:46:24 PM, johngriswald wrote:
The Fed's rate-making body, the Federal Open Market Committee, left the target for its key federal funds rate at zero to 0.25%.

Your thoughts?

That is ridiculously low.

Do they want banks to lend or not to lend? They are sending mixed signals, they are making cheap credit and then paying banks not to lend. I don't get it.

Apparently you fail to understand what the "interest rate is"

It's the rate that the Fed charges to Banks, not the rate Banks charge to consumers.

A low federal funds rate encourages more lending. A higher rate encourages less lending. This is because the bank can borrow money more cheaply.
"What we really ought to ask the liberal, before we even begin addressing his agenda, is this: In what kind of society would he be a conservative?" - Joseph Sobran
wjmelements
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12/16/2009 1:29:41 PM
Posted: 6 years ago
At 12/16/2009 1:25:40 PM, johngriswald wrote:
At 12/16/2009 1:24:30 PM, wjmelements wrote:
It's just asking for hyperinflation.

Sorry, talk to me about hyperinflation when the consumers start spending and we're not scared about deflation.

Then you're just interested in creating another bubble.

Worse, if hyperinflation does occur in the middle of this recession, interest rates will have to shoot up and the market will fail.
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johngriswald
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12/16/2009 1:32:51 PM
Posted: 6 years ago
At 12/16/2009 1:29:41 PM, wjmelements wrote:
Then you're just interested in creating another bubble.
If I was advocating keeping that rate at rock bottom for 10 years such as our brilliant past Fed-Reserve chairman did, then yes.

However I'm only for keeping it low until consumer spending begins to pick up, then upping it so that our GDP makes very modest gains for the next 10 years.

Worse, if hyperinflation does occur in the middle of this recession, interest rates will have to shoot up and the market will fail.
Stagflation is what you are referring to, however it's extremely doubtful that will happen as a turnaround is already being seen and inflation is still extremely low. When our dollar is cheap, then there is an incentive for countries abroad to buy goods made in the US.
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wjmelements
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12/16/2009 1:42:10 PM
Posted: 6 years ago
At 12/16/2009 1:32:51 PM, johngriswald wrote:
At 12/16/2009 1:29:41 PM, wjmelements wrote:
Then you're just interested in creating another bubble.
If I was advocating keeping that rate at rock bottom for 10 years such as our brilliant past Fed-Reserve chairman did, then yes.

However I'm only for keeping it low until consumer spending begins to pick up, then upping it so that our GDP makes very modest gains for the next 10 years.

All loans made under this low interest rate will become unprofitable.

Worse, if hyperinflation does occur in the middle of this recession, interest rates will have to shoot up and the market will fail.
Stagflation is what you are referring to, however it's extremely doubtful that will happen as a turnaround is already being seen and inflation is still extremely low. When our dollar is cheap, then there is an incentive for countries abroad to buy goods made in the US.

Inflation itself necessarily only causes capital loss on all individuals holding the dollar. This gives them incentive to trade it, and the value goes down. When the dollars are finally traded into america, the capital loss occurs there instead.
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johngriswald
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12/16/2009 9:52:25 PM
Posted: 6 years ago
At 12/16/2009 1:42:10 PM, wjmelements wrote:
All loans made under this low interest rate will become unprofitable.

For banks? or for the federal reserve? I'd love some expansion on this.

Inflation itself necessarily only causes capital loss on all individuals holding the dollar. This gives them incentive to trade it

Trade it meaning trade it for goods? Yes it does this, which essentially allows the savings rate to be 0. Which is great for the economy.

When the dollars are finally traded into america, the capital loss occurs there instead.

???
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Reasoning
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12/16/2009 9:55:59 PM
Posted: 6 years ago
At 12/16/2009 9:52:25 PM, johngriswald wrote:
Inflation itself necessarily only causes capital loss on all individuals holding the dollar. This gives them incentive to trade it

Trade it meaning trade it for goods? Yes it does this, which essentially allows the savings rate to be 0. Which is great for the economy.

No savings is great for the economy?
"What we really ought to ask the liberal, before we even begin addressing his agenda, is this: In what kind of society would he be a conservative?" - Joseph Sobran
johngriswald
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12/16/2009 10:23:25 PM
Posted: 6 years ago
At 12/16/2009 9:55:59 PM, Reasoning wrote:
At 12/16/2009 9:52:25 PM, johngriswald wrote:
Inflation itself necessarily only causes capital loss on all individuals holding the dollar. This gives them incentive to trade it

Trade it meaning trade it for goods? Yes it does this, which essentially allows the savings rate to be 0. Which is great for the economy.

No savings is great for the economy?

Long term its absolutely great and that's why I don't advise keeping the interest rate low, long term, but not when you're in a recession and have a fragile economy, no savings is not good.
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Rezzealaux
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12/16/2009 10:26:26 PM
Posted: 6 years ago
At 12/16/2009 10:23:25 PM, johngriswald wrote:
At 12/16/2009 9:55:59 PM, Reasoning wrote:
No savings is great for the economy?

Long term its absolutely great

I read short term and I thought, "Oh, just another Keynesian...."
And then I saw what really was there.
And I loll'ed.
: If you weren't new here, you'd know not to feed me such attention. This is like an orgasm in my brain right now. *hehe, my name is in a title, hehe* (http://www.debate.org...)

Just in case I get into some BS with FREEDO again about how he's NOT a narcissist.

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So... what's there to destroy evil inside of and above the constitutional government?