Fed Funds Effective Rate is set/adjusted by the Federal Reserve Bank's Open Markets Committee (FOMC) to attempt to control the supply of money within the economy. While lending institutions are free to set their own rates, the lower this rate is, the lower individual banks can loan to each other and ultimately to the public. Like US mint precious metal products and their initial mint premiums, the Fed Funds Rate is the base from which the free market determines current interest rates. In affect, it indirectly determines interest rates throughout the economic chain. Interest rates in foreign economies are also, in most cases, being set by their respective central bank.
Because it's goal is to increase the supply of money, a low or zero interest rate policy is just another form of QE.
As bad as the FED would love to raise this interest rate, it cannot do so without a major, negative affect to many markets as well as to economic indicators that Washington would love to keep as positive as possible.
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
I would be completely shocked if interest rates ala FED ticked up so much as half a point before the election. I see them as just bluffing to raise them.
People who used to live off interest income from bonds or savings are taking quite a haircut these days. Their capital is quickly eroding away. I hope those people are aware.
Interest rates are at the correct level based on supply and demand. Interest rates in the World's other major economies are similarly low. Germany and Japan are lower than the US.
What is the correct level? What we have is lots of supply and not much demand. Since the supply is based on the issuance of debt, does that mean that having lots of debt is a good thing, especially when there's no demand for it?
The classic impetus for having low rates is to stimulate an economy. In the past, there's been a multiplier effect for stimulating the economy with injections of new money via debt creation. The multiplier effect is all but destroyed at this point - something like $0.40 for every new $1.00 injected into the economy.
This gives the term "debt burden" a whole new meaning. Anyone who owes the debt is further and further away from ever being able to pay it off. This is a problem when your stated goal is to reduce the inequalities in society by monetary handouts instead of job creation.
Q: Are You Printing Money? Bernanke: Not Literally
<< <i>The "Government" is not keeping interest rates low. Interest rates are at the correct level based on supply and demand. Interest rates in the World's other major economies are similarly low. Germany and Japan are lower than the US. >>
.... There is nothing "artificial" about current rates.
Certainly nothing that $157 TRILL in US bank otc interest rate swaps can't cure....lol. Remove those swaps and let's see what the true unencumbered interest rates should be.
Speaking of that. JPMorgan's monstrous $4 TRILL commod derivs position put on during the 1st quarter was basically removed in the 2nd quarter. All back to normal. No harm, no foul. All forgotten. Or course it had no bearing on commodity prices for those 2 quarters. Commod derivs in 1st quarter were 4X the previous US record set in 2005.... must have been justified in some way. Some HF algo driven computer said "make it so #2." I suspect some trader misunderstood that and thought he was told to make "#2" ($#!T) of the commodity markets for the first half of the year. What's a 17X and 93% market share among friends? You can't make this stuff up.
Exactly. And gold and silver, will therefore... what?
Remain around $1200 and $16, apparently.
Not exactly. Did you see the swings (mostly down) that commodities and PMs have endured in the first half of 2015? All coincidence right? JPM reduced their monstrous position by 83%. Now it's "just" as big as the previous all time high from 2005....lol.
Speaking of bogus. Look at the non-gold PM deriv's on the OCC 1st and 2nd quarterly reports. Those guys are making up numbers. They show Citibank dumping their huge $50 BILL increase in silver derivatives from the first quarter. And in doing that, they went back and erased that $50 BILL increase off the 1st Qtr numbers. Now, it just never happened. Let's see if they don't erase the JPM $4 TRILL 1st Qtr position and say that never happened either....lol. Those guys are bigger revisionists than Cohodk.
Originally posted by: rawteam1 Lol, jeez, the fed can't hold anything down, if the market wanted rates higher, they would be higher, the fed is da wizard...
lol, jeez, read up on Fed Fund Rate, you might learn something.
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
What's the difference between a nominal $157 trillion and double that, $314 trillion? I suppose it really depends on to whom the "money" is owed and who is on the hook to pay it.
When your subjects, er I mean citizens are involved - no problem. Just keep them as mushrooms in the dark, but if the plan involves a bunch of sovereign countries & former allies who decide that your debt and "protection" isn't all that it's cracked up to be and they don't "need" you anymore - at that point all bets are off.
From what I can tell, some of the bets are off the table already. It also doesn't look as if Putin and China will be easy to push around, if indeed that was the plan.
It's a strange phenomenon to have debt as a de facto currency, but that's what we've had now since 1971. It's worked long enough that most people don't notice a thing, as long as the government programs continue to be funded with newly-created imaginary money, in electronically-managed accounts in a banking system that is never accountable for mismanagement or malfeasance.
The problems only arise when there's an actual shortage of goods & services, or when the international accounts show no hope of ever being balanced. It sure looks like a rolling train wreck to me. We're in the 45th car and can't really see all the way to the front, to know whether we have an actual derailment. We can hear a commotion, but it's way up in front.
Q: Are You Printing Money? Bernanke: Not Literally
"The world's largest taxi company owns no taxis (Uber), the world's largest accommodation provider owns no real estate (Airbnb), the world's largest phone companies own no telco infra (Skype, WeChat), the world's most valuable retailer has no inventory (Alibaba), the most popular media owner creates no content (Facebook), the fastest growing banks have no actual money (SocietyOne), the world's largest movie house owns no cinemas (Netflix) and the largest software vendors don't write the apps (Apple & Google)."
Were's an ETF for "The Middleman" when you need one.
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
What do all those companies have in common? Bringing underutilized supply and individual, local and specific immediate demand together in an efficient fashion, and charging a fee for the service.
Get used to it.
(Hey, I think I've found a new sig line, potentially even a "choose your title" if they ever figure out how to get those for us)
I will not be surprised if the FED does an about face on raising rates. Depends on which is more important to them - their reputation of following through or their ties to Wall St.
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
The FED is about managing what they can. Central bankers do not care what you think, only what other central bankers think. What is important is doing what they can regarding inflation and employment.
Retired United States Mint guy, now working on an Everyman Type Set.
Originally posted by: Baley When you think about it, why should a risk-free deposit of cash pay ANY interest?
We get paid for employing cash productively, and for lending at risk, usually, statistically, the higher the risk of loss, the higher potential reward
No cash deposit with others is risk free. This risk has increased since 2008 yet returns on deposits have decreased. Deposits are in reality loans to the bank. Not only does the bank make money loaning them out, the banks are allowed to loan out many times their face value.
If a bank loans out $100,000 based on your deposit of $10,000 (10-1 leverage, not uncommon) it earns interest on the $100,000 loan yet only pays the depositor a much, much lower interest rate on the $10,000 deposit. This results in the bank having $90,000 of "free" money to loan out on which it earns interest yet pays no interest. Based on this it would not be unreasonable at all to require banks to pay interest to a depositor at an even higher rate than it earns interest on what it loans out. The rate paid by the bank should be determined by it's fractional lending leverage. The higher the leverage, the greater the spread should be between what it earns and what it pays.
Depositors take on a great amount of the bank's loan risk, they should share proportionately in the profits earned from those deposits. While FDIC insurance appears to protect the depositor, in reality it is only capable of protecting a very small percentage of deposits at any given time. As I have noted on many occasions, FDIC insurance is more of marketing promotion to make us feel "safe" than it is an actual insurance policy.
The 2008 bailouts were in part a result of the FDIC inability to actually protect account holders from massive bank failure. The depositor's actual risk in loaning a bank money is not a possible failure of the individual bank; the real risk is in failure of the banking system. Ironically, this real risk is controlled by the banks themselves, primarily with their fractional lending leverage decisions. Add in the fact that there is no longer a Glass-Stegall law to prevent banks from using deposits to gamble in areas other than loans.
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
And these phone manufacturers making me $100/month for a phone.
It's a sham than any company be allowed to make a profit. Better to have a govt job, right derryb? Yeah, get excessive benefits, easy work, retire early, and have your neighbors pay for it all.
"The big attraction [for retailers] was saving money, because we only needed one man instead of a team of employees to service the gas pumps," said Cummings. "Gasoline was selling for around 20 cents a gallon and we could offer customers a nickel per gallon discount with self service."
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
Originally posted by: cohodk And these phone manufacturers making me $100/month for a phone.
It's a sham than any company be allowed to make a profit. Better to have a govt job, right derryb? Yeah, get excessive benefits, easy work, retire early, and have your neighbors pay for it all.
No wonder you praise Russia and China as you do.
You're just upset because I recognize their influence in our economic future/outcome and you don't. World economy now, did you not get the memo?
P.S. Don't forget to pay the bill by April 15th. Baby needs new shoes.
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
"The bust in commodities should only last as long as the Fed pretends that it is on course to continue raising rates. When it finally admits the truth, after its hand is forced by continued market and economic turmoil, look for the dollar to sell off steeply and commodities and foreign currencies to finally move back up after years of declines." - Peter Schiff
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
Comments
Because it's goal is to increase the supply of money, a low or zero interest rate policy is just another form of QE.
As bad as the FED would love to raise this interest rate, it cannot do so without a major, negative affect to many markets as well as to economic indicators that Washington would love to keep as positive as possible.
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
People who used to live off interest income from bonds or savings are taking quite a haircut these days. Their capital is quickly eroding away. I hope those people are aware.
Happy May Day.
RIP Bear.
HE>I
What is the correct level? What we have is lots of supply and not much demand. Since the supply is based on the issuance of debt, does that mean that having lots of debt is a good thing, especially when there's no demand for it?
The classic impetus for having low rates is to stimulate an economy. In the past, there's been a multiplier effect for stimulating the economy with injections of new money via debt creation. The multiplier effect is all but destroyed at this point - something like $0.40 for every new $1.00 injected into the economy.
This gives the term "debt burden" a whole new meaning. Anyone who owes the debt is further and further away from ever being able to pay it off. This is a problem when your stated goal is to reduce the inequalities in society by monetary handouts instead of job creation.
I knew it would happen.
<< <i>The "Government" is not keeping interest rates low. Interest rates are at the
correct level based on supply and demand. Interest rates in the World's other
major economies are similarly low. Germany and Japan are lower than the US. >>
If the market wanted higher rates, it would have them. There is nothing "artificial" about current rates.
Knowledge is the enemy of fear
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
<< <i>people will not pay for money as long as it is free. >>
that is useful information, thanks for the wit and wisdom around here, you guys are aces
Liberty: Parent of Science & Industry
Remove the hyphen (-) in the word chart-watchers, copy and paste.. http://stockcharts.com/articles/chart-watchers/2015/05/are-bonds-about-to-take-a-major-dive.html
Knowledge is the enemy of fear
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
Certainly nothing that $157 TRILL in US bank otc interest rate swaps can't cure....lol. Remove those swaps and let's see what the true unencumbered interest rates should be.
Speaking of that. JPMorgan's monstrous $4 TRILL commod derivs position put on during the 1st quarter was basically removed in the 2nd quarter. All back to normal. No harm, no foul. All forgotten. Or course it had no bearing on commodity prices for those 2 quarters. Commod derivs in 1st quarter were 4X the previous US record set in 2005.... must have been justified in some way. Some HF algo driven computer said "make it so #2." I suspect some trader misunderstood that and thought he was told to make "#2" ($#!T) of the commodity markets for the first half of the year. What's a 17X and 93% market share among friends? You can't make this stuff up.
Remain around $1200 and $16, apparently.
Liberty: Parent of Science & Industry
Exactly. And gold and silver, will therefore... what?
Remain around $1200 and $16, apparently.
Not exactly. Did you see the swings (mostly down) that commodities and PMs have endured in the first half of 2015? All coincidence right? JPM reduced their monstrous position by 83%. Now it's "just" as big as the previous all time high from 2005....lol.
Speaking of bogus. Look at the non-gold PM deriv's on the OCC 1st and 2nd quarterly reports. Those guys are making up numbers. They show Citibank dumping their huge $50 BILL increase in silver derivatives from the first quarter. And in doing that, they went back and erased that $50 BILL increase off the 1st Qtr numbers. Now, it just never happened. Let's see if they don't erase the JPM $4 TRILL 1st Qtr position and say that never happened either....lol. Those guys are bigger revisionists than Cohodk.
.
As long as USA has 20 trillion debt to finance & the US$1 is this strong then raising interest rates would cause damage.
.
Leading up to FOMC....threaten to raise rates. At FOMC, back off and push it down to the next meeting. Seems that's the game plan.
.
The Fed is playing kick the can. They've backed themselves into a corner w/ respect to their bag of tricks.
Is the Fed keeping rates low or are they just low because of the economy?
Well, the FED talks about raising them and then doesn't, so I think it's safe to say the FED is keeping them low.
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
Lol, jeez, the fed can't hold anything down, if the market wanted rates higher, they would be higher, the fed is da wizard...
lol, jeez, read up on Fed Fund Rate, you might learn something.
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
When your subjects, er I mean citizens are involved - no problem. Just keep them as mushrooms in the dark, but if the plan involves a bunch of sovereign countries & former allies who decide that your debt and "protection" isn't all that it's cracked up to be and they don't "need" you anymore - at that point all bets are off.
From what I can tell, some of the bets are off the table already. It also doesn't look as if Putin and China will be easy to push around, if indeed that was the plan.
It's a strange phenomenon to have debt as a de facto currency, but that's what we've had now since 1971. It's worked long enough that most people don't notice a thing, as long as the government programs continue to be funded with newly-created imaginary money, in electronically-managed accounts in a banking system that is never accountable for mismanagement or malfeasance.
The problems only arise when there's an actual shortage of goods & services, or when the international accounts show no hope of ever being balanced. It sure looks like a rolling train wreck to me. We're in the 45th car and can't really see all the way to the front, to know whether we have an actual derailment. We can hear a commotion, but it's way up in front.
I knew it would happen.
3 observations on housing show there is no way out
The cliff notes , total housing starts peaked in 1972. Multi family starts are good, single family are yikes .
This with rates very low. By all means Janet , raise interest rates and see what happens.
"The world's largest taxi company owns no taxis (Uber), the world's largest accommodation provider owns no real estate (Airbnb), the world's largest phone companies own no telco infra (Skype, WeChat), the world's most valuable retailer has no inventory (Alibaba), the most popular media owner creates no content (Facebook), the fastest growing banks have no actual money (SocietyOne), the world's largest movie house owns no cinemas (Netflix) and the largest software vendors don't write the apps (Apple & Google)."
Were's an ETF for "The Middleman" when you need one.
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
Get used to it.
(Hey, I think I've found a new sig line, potentially even a "choose your title" if they ever figure out how to get those for us)
Liberty: Parent of Science & Industry
Anyone listening to the junk bond market?
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
FED's fixin' to create a riot in the casino
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
The junk bond fiasco is a contributing factor to the
low rates. US Steel and Chesapeake are trading with 19% yields on 5 year bonds.
Lower rated junk like Linn Energy trading with 60% yields.
Mr. Ing suggests that a rise in interest rates is simply an effort to bring buyers of US debt back to the shrinking table.
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
We get paid for employing cash productively, and for lending at risk, usually, statistically, the higher the risk of loss, the higher potential reward
Liberty: Parent of Science & Industry
When you think about it, why should a risk-free deposit of cash pay ANY interest?
We get paid for employing cash productively, and for lending at risk, usually, statistically, the higher the risk of loss, the higher potential reward
No cash deposit with others is risk free. This risk has increased since 2008 yet returns on deposits have decreased. Deposits are in reality loans to the bank. Not only does the bank make money loaning them out, the banks are allowed to loan out many times their face value.
If a bank loans out $100,000 based on your deposit of $10,000 (10-1 leverage, not uncommon) it earns interest on the $100,000 loan yet only pays the depositor a much, much lower interest rate on the $10,000 deposit. This results in the bank having $90,000 of "free" money to loan out on which it earns interest yet pays no interest. Based on this it would not be unreasonable at all to require banks to pay interest to a depositor at an even higher rate than it earns interest on what it loans out. The rate paid by the bank should be determined by it's fractional lending leverage. The higher the leverage, the greater the spread should be between what it earns and what it pays.
Depositors take on a great amount of the bank's loan risk, they should share proportionately in the profits earned from those deposits. While FDIC insurance appears to protect the depositor, in reality it is only capable of protecting a very small percentage of deposits at any given time. As I have noted on many occasions, FDIC insurance is more of marketing promotion to make us feel "safe" than it is an actual insurance policy.
The 2008 bailouts were in part a result of the FDIC inability to actually protect account holders from massive bank failure. The depositor's actual risk in loaning a bank money is not a possible failure of the individual bank; the real risk is in failure of the banking system. Ironically, this real risk is controlled by the banks themselves, primarily with their fractional lending leverage decisions. Add in the fact that there is no longer a Glass-Stegall law to prevent banks from using deposits to gamble in areas other than loans.
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
Knowledge is the enemy of fear
It's a sham than any company be allowed to make a profit. Better to have a govt job, right derryb? Yeah, get excessive benefits, easy work, retire early, and have your neighbors pay for it all.
No wonder you praise Russia and China as you do.
Knowledge is the enemy of fear
Yeah!!!! I should charge the gas station for making me pump my own gas.
You already are
"The big attraction [for retailers] was saving money, because we only needed one man instead of a team of employees to service the gas pumps," said Cummings. "Gasoline was selling for around 20 cents a gallon and we could offer customers a nickel per gallon discount with self service."
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
And these phone manufacturers making me $100/month for a phone.
It's a sham than any company be allowed to make a profit. Better to have a govt job, right derryb? Yeah, get excessive benefits, easy work, retire early, and have your neighbors pay for it all.
No wonder you praise Russia and China as you do.
You're just upset because I recognize their influence in our economic future/outcome and you don't. World economy now, did you not get the memo?
P.S. Don't forget to pay the bill by April 15th. Baby needs new shoes.
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
Knowledge is the enemy of fear
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan