/biz/ - Business & Finance

[Anonymous No.16113633]

How do interest rates really work? If the fed is artificially keeping them low, do we run a risk of the market taking control and interest rates rising organically despite central bank control?

T. Brainlet

[Anonymous No.16113669]

the market controls interest rates. it's the tail that wags the dog. unfortunately you need to be high IQ to see how it works.

[Anonymous No.16113684]

>>16113669

Can you explain more? The markets being the banks? Or the consumer? Why do banks lend out money at such low interest rates? How do they expect to turn a profit if interest rates are almost at 1%. And why do they loan them to anyone without properly determing if their credit is good (i.e subprime mortgage crisis) did they know the gov will just bail them out so they took the risk?

[Anonymous No.16113688]

>>16113633
>drinks a few beer
>drinks four beer
>beer

[Anonymous No.16113706]

the interest rate is a countdown clock, when it hits zero it's literally armageddon tier event, that's why the fed tries to use quantitative easing and other shitty methods to keep the economy running above 0% interest rate

[Anonymous No.16113754]

>>16113684
the market being people have money, or manage money. banks make less money with low fed funds rate (interest rates set by the federal reserve). in regards to the subprime crisis, they loaned money and send sold the contracts in CDOs (collateralized debt obligations) to investors that were chasing "risk free" yield. investors didn't mind because they were able to buy insurance on those CDOs called CDS's (credit default swaps) from giants like AIG. However, the system came to a halt when everyone realized AIG wouldn't be able to cover their obligations, hence this is why the government took stepped in.

[Anonymous No.16113782]

>>16113754

Where do you think the economy is going now?

[Anonymous No.16113793]

>>16113782
dont know, plan for every scenario and you'll always be ok

[Anonymous No.16113801]

>>16113633
>interest rates rising organically
Don't understand how interest rates work, huh?

[Anonymous No.16113840]

>>16113782
Not who you were talking to, but in the US, the economy keeps ticking along. It's pretty healthy, despite the doomsayers and chicken littles. The jobs numbers released today is healthy, even with the book cooking that's expected and done by every administration.
The Trump economy is more solid than most give it credit for, even with the trade wars and other shenanigans. Which is what I think was Trump's goal - if we're solid, EU can melt down, and it won't take us down with it.
The sad thing is, we're heading into an election year, and the Dems will do anything they can to paint the picture that the economy is bad, because they always do. But if Trump is re-elected, and I think he will be, we're looking at 4 more years of growth. I've seen a couple respected economists say recently that the impending recession everyone was freaking out about a couple months ago has been delayed for a couple of years. The stock market just hit a new ATH. People are working. Tax revenues are up. People are shrugging off the doom and gloom from the dems, and are just doing their thing.
It's not all puppies and rainbows, but I think the US is looking at a couple more years of (slower) growth and stability. Not enough wealth creation and middle class growth for my liking, but I think we're gonna be okay.

EU? No clue. With the Brexit shit and Deutchebank, who fucking knows.

[Australian Doomer No.16113854]

Okay anon, I’ll explain to you how the federal reserve and interest rates work, since I’m a bored Economics major pleb.

So, the federal reserve acts as a central bank. It’s very different to a commercial bank, as they actually an independent government institution that conducts monetary policy (basically controlling the supply of money) and control inflation (their government set mandate is in 2-3% Inflation rate.

Now, the federal reserve does conventional monetary policy through is changing their lending rates towards bank reserves. When the Fed changes the rate, they change the amount of money that banks have in their balance sheets. So, if they lower the federal funding rate is 1.5 as they did recently, banks have essentially more cash in their balance sheet, having greater ability to loan out.

Now, banks can choose what to do with the extra cash on their balance sheet. They could lower their own interest rates for certain retail customers (home loans) to compete against other banks. This is why interest rates can be driven low (competition). Remember also, with your question about making a profit with “1%” that many of those loans are considered “lower risk” loans, so they can make the banks more financially stable and can be “securitised” into a low risk financial product. Banks also decide if they want loan higher risk clients (subprime) as they can charge higher rates for higher risks.

In terms of interest rate risk of rising, you are correct that market mechanism can be a determine factor. But, the key thing with interest rates is it’s an expectation game. Higher interest rates are associated with higher inflation, higher rates of economic growth and higher risk. All these factors are systemically low at the moment in most advanced economics (US inflation was at 1.8%, below the targeted inflation rate). This gives an environment where rates of return are expected to be lower.

Hope my restarted explanation helps.

[Anonymous No.16113866]

>>16113684
central banks that set interest rates use them as policy tools in response to economic conditions of a society. Central banks are not in it for profit, they are paid by the Government.

[Anonymous No.16113869]

>>16113633
Shit meme

[Anonymous No.16113871]

>>16113840
>It's pretty healthy, despite the doomsayers and chicken littles.
Guys please tell him

[Anonymous No.16113912]

>>16113871
Why can't you tell me yourself? Hmm? Refute anything I posted, any time, instead of expecting other retards to shout memes at me - which you're too lazy to do yourself.
You're the posterchild for cointards. You have no real argument, you ignore or reject reality because you can't have your little get rich scheme bubble popped, and you bring nothing to the table.
The sky isn't falling, but here you are, expecting other people to be chicken little for you.
I mean, could you be more weak and irrelevant? If you tried? At all?

[Anonymous No.16113954]

>>16113633
What is this fucking cringe shit? Get the fuck off my board.

>duuhh how do interest rates work I can't look it up or watch a video

kill yourself right now

[Anonymous No.16114165]

>>16113854

so basically as i said it's a countdown clock in a fucking ponzi with a singularity that makes all early boomers adopters fucking rich until the economy becomes stagnant but now nobody wants to drop the money because it's all hoarded in fucking gold or external assets

[Anonymous No.16114213]

Lets say your a boomer cuck buying government bonds at 0% interest
If interest drops to -0.5% then the actually BUYING PRICE of your BOND becomes much more valuable since new bonds on the market have negative yield whilst yours has no yield.

Why is this important?

Lets just say that 17 TRILLION USD is currently locked up in negative yielding bonds.

Guess what happens to the price of those bonds if interest rates go positive again?!
Trillions of dollars wiped out in minutes

If your not buying Precious metals and bitcoins your going to be FUCKED come this next financial Crisis (unless the government bails out the entire stock market by printing money, which will essentially blow up the bubble EVENMORE and make the total economic collapse 10 years from now of apocalyptic proportions