Both these explanation are good. But I don't understand the shock behind the poll. I'm actually shocked 27% actually do know what QE is that is higher than I expected. Economics in general isn't a popular topic with most people are not interested in even some of the basic topics, let a lone a more sophisticated strategy being implemented by the Fed currently.

 

I'm an economics nerd and this topic is my book of choice in my spare time. On that note anyone trying to dip their toes in this topic but don't want a book that is techinical or with many math problems I reccomend "Free to Choose" by Friedman.

 

We agree on the shock that it was as high as 27%. I am in the 27% but I , unlike you, am not an economics nerd. I'm more of a news nerd which is why I am familiar with the concept.

I'm no economic nerd, and pretty much when economics is the one thing guaranteed to make me zone out when the discussion begins.

I'm one of the 3/4. I neither have the income to put much energy into understanding , :

 

If you take out loans it impacts you.

 

If you take out loans it impacts you.

 

I don't.

I don't.

 

 

Did't you get a new car recently? Pay cash?

 

Did't you get a new car recently? Pay cash?

 

I stand corrected. I do have a car loan. No others though.

I stand corrected. I do have a car loan. No others though.

 

Those rates you get are impacted by QE.

 

Those rates you get are impacted by QE.

 

Actually, my rates were most impacted my lack of credit. Because I had no credit cards, loans, etc, there was no way I was going to get prime anyway.

Here it is...

 

You may have heard that the government or the Fed is 'printing money'. That is not technically correct.

 

The US government must fund its debt via bond sales. In a free market without a major overarching player (the Fed) the interest rates on such bonds would be much higher than now. With the government sucking up so much money to fund it debt the interest rate would be higher on these bonds and the cost of money for the entire system would be higher.

 

The Fed has agreed to buy the bonds that funds the government at substancially below market rate. This rate is also available to 'to big to fail' 2nd tier banks. This is what drives almost all interest rates for mortgages, business loans, etc. So everyone who is borrowing money is getting an artificial low rate.

 

If the Fed stops 'quantitative easing' via what is called 'tapering' interest rates will go up. The market forces will take effect and the cost of (borrowed) money will go up. Mortgage rates will rise, other borrowing rates will rise.

 

The Fed is massive central bank formed by the richest families of the US back in 1916. This happens to be the same year that Federal income taxes came about. It is not a government entity - it is a bank. It is THE bank of the US and of much of the world. Its major 'client' is the US government. If it quits buying US bonds (the are sold at auction periodically) at artificially low rates then the interest paid by the US government will rise as bonds auctioned at likely much higher rates since other investors will want better return due to increasing debt and interest load of the Federal government.

 

The Fed makes money for its owners by lending money - as any bank does. Eventually they will want more return for the their money. But with so much of their lending going to the government they can not afford to have the government default - so they keep rates low to 'stimulate' the economy. So now there is a strong interlock between the Fed policies and political policies. If the Fed raises rates or 'tapers' rates will rise for mortgages, the housing market will stagger again, the 'TBTF banks' will suffer (or their profits will suffer), businesses will not be able to afford to borrow money and will stagger - stalling the 'recovery'. People will blame the politicians (of both parties) and the system will go under severe strain. If the strain is bad enough it will cause another recession or worst. So now politicians have a vested interest in what the Fed does and this is why the Fed is now a political entity as much as a financial one.

 

Without QE, the Federal government would be broke or going broke even faster than it is now.

 

What neither the government nor the Fed can allow to happen is for the US dollar to lose its status as a 'reserve currency'. Just as the Fed is the 'central bank' of the world. The 'central currancy' of the world is the US dollar. It is what allows all of this QE to happen. So now the solvency of the Federal government and the Fed and the value of the US dollar as a reserve currency are all inter-weaved and critical - to all of us. It is somewhat of a catch 22 now. If the Federal government defaults, if the Fed quits loaning the Federal government at artificially low rates or if the US dollar loses is status as the worlds reserve currency - we are all in trouble. It would be like Germany in 1930s. Inflation will run rampant and skyrocket and the US economy - and the world economy - will collapse.

 

To the tune of $85 billion a month.....:eek:

 

Fed Refrains From QE Taper, Keeps Bond Buying at $85 Bln - Bloomberg

Actually, my rates were most impacted my lack of credit. Because I had no credit cards, loans, etc, there was no way I was going to get prime anyway.

 

The Fed does sets interest rates, but what it does affects the economy overall. Probably moreso than Congress, especially right now. Very little has happened with gridlock, but not with the Fed. The government basically has two gas pedals and two brakes as far as the economy goes. One is spending, which is controlled by Congress, and the other is monetary, which is controlled by the Fed. That's the very simple view, but what the Fed does is very important, and it's very much been giving the gas pedal.

Alasdair Roberts | The Problem of Federal Reserve Independence | Foreign Affairs

 

I thought this was a relatively concise article laying out the current importance of the Fed and its policies.

I'm with Rockmom. I have no clue what you guys are talking about. I'm going back under my rock.

 

 

Carry on.

I'm with Rockmom. I have no clue what you guys are talking about. I'm going back under my rock.

 

 

Carry on.

 

I don't blame people not knowing what is going on with the Fed. They are as secret as the CIA. I would love to see some different Economist and principles running the Fed instead of some the same ideas recycled . Its seems like decades of repeating the same bubble and busts. To much artificial and not enough organic growth . Just one mans opinion . I'd love a disciple of Friedman Sowell or Austrian economics. But I live in my own economic dream world.

Here is an interesting article/post on the Fed. It is 'anti-Fed' in its tone but it points out some of the interesting background of the formation.

 

The Federal Reserve - Its Origins, History & Current Strategy

 

On December 23, 1913, the Federal Reserve Act, also known as the Glass-Owen Bill, was passed. The Republican controlled Senate rammed the bill through when many members of the US Congress were home for the holiday.

 

The Federal Reserve System is an independent central bank. Although the President of the United States appoints the chairman of the Fed, and this appointment is approved by the United States Senate, the decisions of the Fed do not have to be ratified by the President, or anyone else in the executive branch of the United States government. Buried in the legislation was the granting of total power over the monetary policies of all US banks. A very curious statement is found in the original 1913 law. SEC. 30. The right to amend, alter, or repeal this Act is hereby expressly reserved. Reserved expressly to whom, or what? No definition is provided. This is the entire Section 30 statement!

 

The Federal Reserve was only given a corporate life of 20 years! Their time was up in 1933 Who was President at that time? Franklin. D. Roosevelt, of course. Somehow, the Federal Reserve's termination did not occur.

No Senator or Representative in Congress shall be a member of the Federal Reserve Board or an officer or a director of a Federal reserve bank.

 

Federal reserve banks, including the capital stock and surplus therein, and the Income derived therefrom shall be exempt from Federal, State, and local taxation, except taxes upon real estate.

 

The two principal Rothschild representatives in New York, J. P. Morgan Co., and Kuhn, Loeb & Co. were the firms which set up the Jekyll Island Conference at which the Federal Reserve Act was drafted, who directed the subsequent successful campaign to have the plan enacted into law by Congress, and who purchased the controlling amounts of stock in the Federal Reserve Bank of New York in 1914. These firms had their principal officers appointed to the Federal Reserve Board of Governors and the Federal Advisory Council in 1914. In 1914 a few families (blood or business related) owning controlling stock in existing banks (such as in New York City) caused those banks to purchase controlling shares in the Federal Reserve regional banks. Examination of the charts and text in the House Banking Committee Staff Report of August, 1976 and the current stockholders list of the 12 regional Federal Reserve Banks show this same family control.

 

The Federal Reserve will always debase the currency to take its cut, and guarantee that the government has a tax base available to feed its bureaucratic family. The government is a total slave of the Federal Reserve.

 

 

 

Another article on the creation of the Fed - the Jekyll island Conference:

 

Federal Reserve System, Jekyll island, History, Aldrich Plan, J. Pierpont Morgan, Historical, Dr. A. Piatt Andrew, Henry P. Davison, National City Bank, Frank A. Vanderlip, Kuhn, Loeb, Co., Paul M. Warburg, Nelson W. Aldrich

 

In the fall of 1907 the United States was in a recession, it's banking system lacked a lender of last resort mechanism, and an intricate network of directorships, loans, and collateral bonded the fate of many financial institutions together.

 

The secretary of the treasury George B. Cortelyou was eager to divert the situation and offered the New York bankers use of government funds to help prevent an economic disaster. President Theodore Roosevelt, while the panic of 1907 transpired, was on a hunting trip in Louisiana.

 

Ron Chernow in his book The Death of the Banker offers this account of the 1907 Panic, "In the following days, acting like a one-man Federal Reserve system, [J. Pierpont] Morgan [J. P. Morgan] decided which firms would fail and which survive.

 

The 1910 "duck hunt" on Jekyll Island included Senator Nelson Aldrich, his personal secretary Arthur Shelton, former Harvard University professor of economics Dr. A. Piatt Andrew, J.P. Morgan & Co. partner Henry P. Davison, National City Bank president Frank A. Vanderlip and Kuhn, Loeb, and Co. partner Paul M. Warburg. From the start the group proceeded covertly. They began by shunning the use of their last names and met quietly at Aldrich's private railway car in New Jersey. In 1916, B. C. Forbes discussed the Jekyll conference in his book Men Who Are Making America and illuminates, "To this day these financiers are Frank and Harry and Paul [and Piatt] to one another and the late Senator remained 'Nelson' to them until his death. Later [, following the Jekyll conference,] Benjamin Strong, Jr., was called into frequent consultation and he joined the 'First-Name Club' as 'Ben.'"

 

The Jekyll Island conference offered a secluded location to discuss banking ideas and enabled the development of a plan that eventually became the Federal Reserve Banking System. The Federal Reserve System is the name given to the twelve central banks regulating America's banking industry and it insures that depositors will not lose their money in the event of funds mismanagement from an accredited bank.

[Note: The creation of the Federal Reserve was supposed to keep the 2008 melt down from happening.]

 

For years members of the Jekyll Island Club would recount the story of the secret meeting and by the 1930s the narrative was considered a club tradition. The conference's solution to America's banking problems called for the creation of a central bank. Although Congress did not pass the reform bill submitted by Senator Aldrich, it did approve a similar proposal in 1913 called the Federal Reserve Act. The Federal Reserve System of today mirrors in essence the plan developed on Jekyll Island in 1910.

The government is participating in a kiting scheme. Writing checks on one account to cover another account and on and on and staying ahead of the float.