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How Interest Rates Are Set: The Fed's New Tools Explained

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The Federal Reserve has kept interest rates at near zero since the 2008 financial crisis. To raise them, it has come up with a new set of tools. A WSJ explainer. Subscribe to the WSJ channel here: http://bit.ly/14Q81Xy More from the Wall Street Journal: Visit WSJ.com: http://www.wsj.com Follow WSJ on Facebook: http://www.facebook.com/wsjvideo Follow WSJ on Google+: https://plus.google.com/+wsj/posts Follow WSJ on Twitter: https://twitter.com/WSJvideo Follow WSJ on Instagram: http://instagram.com/wsj Follow WSJ on Pinterest: http://www.pinterest.com/wsj/ Don’t miss a WSJ video, subscribe here: http://bit.ly/14Q81Xy More from the Wall Street Journal: Visit WSJ.com: http://www.wsj.com Visit the WSJ Video Center: https://wsj.com/video On Facebook: https://www.facebook.com/pg/wsj/videos/ On Twitter: https://twitter.com/WSJ On Snapchat: https://on.wsj.com/2ratjSM
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Text Comments (185)
live injection (28 days ago)
Not even a mention where the Fed gets it's money?
YouThinkImPlayin (29 days ago)
This is one of the worst explanations of the fed funds rate.
steve bishop (29 days ago)
Why do we let a cartel of foreign banks determine our monetary system?
kevin jermin (1 month ago)
Kyle Butler (1 month ago)
Oh, It's just 5 am and I'm just having my coffee.... I still somehow don't get it. I'll try to watch again in the evening :-)
Trending business (1 month ago)
2.25 apr now.
# me (1 month ago)
I think there are other ways to explain this process in a simpler way.
Elvin Zunic (1 month ago)
Brock Story (30 days ago)
+Elvin Zunic I'd have more of your portfolio be in metals than crypto just because of the longer history.
Elvin Zunic (30 days ago)
Bigger trust in the code then in a bunch of criminals at the top.
Brock Story (1 month ago)
Careful with Bitcoin
jhonathan mondragón (1 month ago)
Lies. Bankers need to funnel money from poor to the rich. So they artificially keep it lower. Dare someone tries to rise it, they start creating scare
Dosadoodle (1 month ago)
Wait, so banks can borrow at the lower rate and park the money at the higher rate for an arbitrage? Seems like the feed is literally just handing money no strings attached at this point to banks...
James Pride (1 month ago)
caused my distress.
The Maverick (1 month ago)
Why can't home loan banks lend directly to consumers instead of lending to the big banks?
Mustafa Genc (1 month ago)
Lol this was a terrible explanation in my point of view. The elevator analogy wasn't necessary.
Kyle Netherwood (1 month ago)
Is the Federal Reserve the American equivalent of the Bank of England?
Toma Langi (1 month ago)
In other words, big banks got free money on top of the free bail out money they gotten.
Thomas Johnson (1 month ago)
So the Black Dude Globalist tearing down America and tearing down the US military gets ZERO percent interest on the money? Now our President is bringing back up America and you raise the interest rate? I don't hear any Jerks from the FED RESERVE thanking the President?
FAW (2 months ago)
I still don't get it..
As of Nov 9, 2018 Interest on reserves (required and excess reserves) IOER 2.20% The federal funds rate 2.00% - 2.25% Reverse repo rate RRP 2.00% Discount rate* (the primary credit rate) 2.75% (*not shown in the video, banks can borrow at a lower rate from the market using the federal funds rate) Source: The Federal Reserve, Implementation Note issued November 8, 2018, https://www.federalreserve.gov/newsevents/pressreleases/monetary20181108a1.htm
david alford (2 months ago)
confusing but interesting.
dyeace (2 months ago)
I feel dumb, this doesn't make sense to me :*(
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Robert Parrinello (2 months ago)
I like the music
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pratik khadtale (2 months ago)
RIPxBlackHawk (3 months ago)
*Did you catch it?* The Fed makes money for someone else to loan it to no one so it ends up at the Fed as F U money. Its like I had a Lollipop manufactury but I'm not allowed to eat any lollipops by law. So I give them to you for free, so you can give them back to me after work. For that service, I bring you some bonbons that we also manufacture. If you run away with the lollipops you are a criminal. If you don't want to do the service for me, you are an idiot. If you didn't catch it while watching the video, just imagien how many people don't catch this that never even watch it!
Carlos Sanchez (3 months ago)
Well, it’s that time The rate are now up because the economy is too good That’s actually a good thing
Yitzak Lieberstein (3 months ago)
I luv jooish banking practices, theyve done sooo much good for the goyim.
Muhammad M (4 months ago)
Voodoo economy
Roundfrenchcheesey (4 months ago)
The fact that he didn't use the Big Bank/ Home loan as plurals bothered me on some deep level.
Pray To The Only God (4 months ago)
4 sins cause greatest corruption to human soul&earth: uncurable diseases, plagues, disasters, ingnorance, extremism, crimes, etc. For doers of these four sins, God promised (in Quran) eternal hellfire: 1-Worshipping another deity with God 2-Killing human without right 3-Fornication&Adultery 4-Habit of taking Usuary (interest on loans) Except who believes, repents, and does righteous. O humans, pray for forgiveness, repent to yr only God, and worship him by standing against major sins to prosper to knowledge, global peace of mind, and eternal heaven.
sesshoumaru3st (5 months ago)
well, good to know that the fed got better at influencing price and contraction of the money supply.
kurono1822 (6 months ago)
1-Government needs money 2-The federal reserve gives electronic money out of thin air (No need of gold or silver!!!!) 3-The government only pays the interests 4-The debt keeps getting bigger and bigger, the inflation is out of control 5-U.S gets a new deal with Saudis regarding oil trades 6-The inflation is "controlled" 7-The government is still indebted, meanwhile a small group of families are wealthier 8-U.S taxpayers can only make up for the interest 9-Government is indebted for life
wizard hacker (1 month ago)
kurono1822 then once the U.S pays interest to the Fed the Fed turns around and gives those profits right back to the U.S treasury
Nicholas Benedict (2 months ago)
kurono1822 most accurate thing I’ve ever read.
Pray To The Only God (6 months ago)
4 sins cause greatest corruption to human soul&earth, for such, God promised (in Quran) eternal hellfire in judgement day: 1-Worshipping another deity with God 2-Murder 3-Adultery 4-Habit of Eating Usuary/Interest
MouthOfFunk (6 months ago)
great vid
Micah S (7 months ago)
say hello to capitalism, where the rich keeps making money out of nothing, and the poor has to work for nickels and dimes.
Duck My Sick (4 days ago)
+Diego Niño we all can become the next steven dux and make 3 Mill in 2 years lolz
Diego Niño (1 month ago)
we all can get savings accounts that pay more than 2%. We all can invest in stock market and make money from big companies. Don't limit yourself
Micah S (7 months ago)
what in the world is going on.
이명후 (7 months ago)
When bankrupt of business then another person get chance to run the business....FED is one of control the economic bank with investment bank and district banks.
Pray To The Only God (8 months ago)
God forbids taking interest on loans. God promised to curse interest taken money by rich greedy people, on the other hand, God promised to bless charity given to the needy. God promised eternal hellfire for such greedy people who are used to eat usuary. O humans, fear yr only God, &return to him in sincere repentance before you face him in the judgement day and say: O lord please let me go back to give charity and become righteous, but he will say: No.
David Raymond (8 months ago)
It looks like big bank is parasitizing the other 2 parasite banks
Yves Cork (9 months ago)
I'm even more confused
Joshua Colombi (10 months ago)
Can anyone explain to me why 'home loan' can't park the money in the 'fed' interest directly rather than having to pass through the bank... does that just come from law?
yakkyuu12 (7 months ago)
Because - Big bank are a group of banks that REALLY make up the Federal Reserve Board, They STAY in control, They ARE the OLD money that is what the Federal reserve is made up of!!! The SO CALLED -- HOME LOAN, are smaller banks and other lenders who WILL NEVER have as much money and lending power as the 12 big banks !!! During the LAST recession (really a depression) we REALLY had a great opportunity to FINALLY get the banks under control, BUT, our government officials ( who are supposed to work in our best interest), did little to nothing, and kept the banks in control-- and to make it worse- Most of the DODD - Frank Reform Bill -- that gave people protection and put more controls on banks, has been repealed by Trump and --- NO, Obama did Nothing EITHER ( he turned a blind eye, as they kept up the same game)
Ruben (11 months ago)
Don't understand what Home Loan banks are
yakkyuu12 (7 months ago)
Home Loan banks are many of the smaller banks through out the country that don't have as many assets and lending power as the biggest banks who WILL stay in control!!!
Ryan B (11 months ago)
This is so confusing. Never mind!
a64750 (11 months ago)
actually; Wall Street controls interest rates on the 10 and 20 year bond and mortgage interest rates follow. Federal Reserve only controls fed funds; the interest rate for borrowing from the Federal printing press.
Adrian Villalobos (11 months ago)
WHAT?! What is home loan???
Christopher Jolliffe (11 months ago)
Might as well just say, "They can print money, don't worry about the rest"
Christopher Jolliffe (11 months ago)
If you are making money trading paper or digital numbers and letters around, without doing any actual work, (Actually producing a usable good or service), you're hustling somebody. No if ands or buts about it.
Chris Butler (1 year ago)
Can you say pyramid scheme especially considering that the Federal Reserve is not federal as in no oversight by the government or little. It is run by bankers. Welcome to being a Slave
J X (1 year ago)
Illustre (1 year ago)
😕 😕 😕
Jorge Orpinel (1 year ago)
Otherwise known as communist central planning of the economy. Which is proven to work great...
Aaron (1 year ago)
Here's another condescending animation about the economy.  Look at all those cool graphics!
Holy sh1t how is this legal at all? This disturbs prices on the market. Nobody can control market but market itself.
yakkyuu12 (7 months ago)
been this way forever, people just don't learn or pay attention ( very corrupt)!!! And our system is MUCH more fair than ANY COUNTRY IN THE WORLD. That is how corrupt the rest are --- including Croatia-- sorry but its true!
Cole Striler (1 year ago)
Arguably one of the most confusing videos I've ever seen
Cassius SpaceTrain (1 year ago)
DSG (1 year ago)
Super low interest rates are a disaster for younger generations. They just makes the capital cost of everything higher, effective repayments lower and length to pay off longer. But the risks are sky high in that one day rates will return to normal and home prices will crash along with stockmarkets and valuations of almost everything.
Cassius SpaceTrain (1 year ago)
Playboysmurf1 im hoping for that, in a lesser extent. home prices and the stock market are far too hot
Anarchy Seeds (1 year ago)
that's a scam if I've ever seen one
lfin _77 (1 year ago)
i dont get it... so u borrow money and u pay it back slowly? how do banks make profit if u pay off the dept? do u pay more than what u borrow slowly? idk
Smart African (1 year ago)
Lit _66 yes. You pay more than what you owe
Kelvin Cheng (1 year ago)
how do the feds get the money to pay for the interest paid to the banks?
yakkyuu12 (7 months ago)
They have a SERIOUS REAL relationship with the Treasury DEPT. ( treasury Prints whatever the fed wants AND the government passes bills in agreement to print!! AND the FED is NOT (REPEAT -- NOT) a arm of the government!! This goes ALL the way BACK the 1929 Depression. The BIGGEST, RICHEST PEOPLE -- JP MORGAN, Rothchilds AND OTHERS!!! Agreed to lend our government money for MANY RIGHTS and power OVER the financial system. the politicians agreed because these Rich FAMILIES backed their campaigns (This created a VERY convenient collusion and KEPT power among the few) this is called an Olligarchy!! This is our reality, disguised as a republic!!! Yet MUCH BETTER than ALL other countries!! Pretty bad !!
A Fury (1 year ago)
Holy confusion, batman Thanks for the video though, would definitely appreciate more :)
Anonymous (1 year ago)
Turned off at 17 seconds "overheating" is not acceptable as an explanation
crypto sight (1 year ago)
wow this video is fake bullshit.
Janko Hrasko (1 year ago)
AKA, theft of human labor.
Alex Charles (1 year ago)
I have no idea what just happened...this confused me more.
babiedaydreamer96 (1 year ago)
Can someone please tell me what an interest rate is? Also, can you use simple words? Thank you!
zaiks0105 (9 months ago)
+babiedaydreamer96 Interest Rate == Feds Funds Rate. The former is day-to-day word IOER, interest on reserves and excess reserves => Lower bound for Feds Funds Rate Discount Rate == Upper bound for Feds Funds Rate Interest rate is a range, NOT set by Feds but Feds give strong incentives to banks to finally reach that rate. Interest rate is actually interest on interbank loans charged by lending bank to borrowing one. Each bank can charge any rate they want (to another bank) but they don't in reality. Because if they charge excessive, nobody will borrow since the borrower can simply get it cheaper from Feds, Discount Rate. And the borrower can't borrow if it can't pay around Feds Funds Rate simply because nobody will lend it. By not lending it, potential lender earns more simply by IOER from Feds. Thus IOER serves as lower bound. Reverse Repos are special tool to get the banks back into above mechanism. It is used in special situations where banks have plenty of reserves. I understand it but don't include it here.
Lincoln C Mitchell (1 year ago)
good video
James McNamee (1 year ago)
Ryan Nguyen (1 year ago)
The Fed should be audited. #AuditTheFed
OhNoItsGojira (1 year ago)
Any interest rate over 15% should be considered usury. Fuck you South Dakota and Delaware.
SlashZ890 (1 year ago)
Give it a longer time and it will collapse.
zaiks0105 (1 year ago)
Actually, info presented in this video is misleading and outright wrong for some parts. Only some parts are correct here. - For once, it doesn't have Discount Rate - It misleads you to think that big banks and home loan banks are 2 classes. They are not. Feds do distinguish between different sizes of banks but not this way - IOER is depicted as the upper bound. It is plain wrong. It also doesn't distinguish between IOER and interest on (required) reserves I understand it was uploaded back in 2015 but WSJ NEEDs to update it.
- Banks can borrow at a lower rate from the market using the federal funds rate. Therefore, the discount rate is not a benchmark for most banks. - Home loan banks (big lenders such as Fannie Mae and Freddie Mac) are not banking institutions so they cannot keep the deposits in the Fed. Therefore, the Fed cannot pay using IOER - Interest on required reserves (IORR) and interest on excess reserves (IOER) are set 2.20% currently. They may be set differently. In that case, IOER could be upper bound rate since banks only use excess reserves. - The federal funds rate is a market rate. The other rates are administrative rates (set by the Fed)
iceias (1 year ago)
sounds like a mess
Sarah Schreiber (2 years ago)
this video sucks
Konstantin Sverdlov (2 years ago)
Good work WSJ!
Cpt Kronic (2 years ago)
this is all bullshit. we need to print our own fucking money and kill the privately owned fed. or at least take it over so we can stop printing debt money. and start printing money without debt. just look at who the fuck owns this debt of ours Saudi princes and shit i mean come the fuck on.
Mark Aven (1 year ago)
The problem is that government lawyers controlling it could mean even more corruption. Then again it could be better...It's not as simple as that...
Cpt Kronic (2 years ago)
who the fuck gives a rich person from another country the right to make your money how they see fit. so they can profit from it.
Cpt Kronic (2 years ago)
the Saudi prince laughs in our faces saying he makes USA dollars by creating debt loans and gets paid with federal tax dollars to do so.
marcus davis (2 years ago)
I'm not the highest grade of weed in the dispensary, but that still confused the shit out of me...... smh
Mark Aven (1 year ago)
lol, awesome
Phil King (2 years ago)
Sounds like another scam and smokescreen.
nathanielson (2 years ago)
The fed interest rate and the quantity of the supply of money in the system isn't the same is it?
xViRuSx (2 years ago)
Luddist Expat I don't think so. I think the fed interest rates end up raising or lowering the money supply
Kamal Birda (2 years ago)
Bull shit
DoucheNozzle (2 years ago)
why does home loan accept lower interest rates? why don't they just set the interest rate to maximum below IOER?
Zack Gray (2 years ago)
I believe the Fed Funds Rate, which is the rate you are referring to, is a natural result of the supply and demand for reserves in the banking system. In this scenario, supply is likely large enough that Big Bank has enough negotiating power to find a better rate elsewhere. Yes, they could borrow just below the IOER and earn a profit, but they could also find a different bank to supply them funds at a lower price. Similarly, Home Loan cannot find another borrower offering a higher rate. When the Fed raises the RRP, both Home Loan and Big Bank know there is another borrower in the market offering a higher, virtually risk-free rate. This gives negotiating power to Home Loan. In effect, it is equivalent to raising the demand for reserves, which brings the market rate to a new, higher equilibrium. Another way for the Fed to achieve this, presumably, is to decrease the supply of reserves in the banking system, by selling government bonds.
marcus davis (2 years ago)
Becuz the "Fed" which is a private bank goes off of how the economy is doing and sets the bench mark from there..
Randy Thibeault (2 years ago)
ThisIsNot AnAlias (2 years ago)
I feel like most metaphors people come up with confuse me more than they have to
leunga (3 months ago)
Similar to quantitative easing... the government just create more credit (print more money) after the 2008 crisis to stimulate lending to banks and hopefully it leads on to people spending more.... Not really solving the problem. Attitude on money and greediness is the problem
leunga (3 months ago)
Wanted to find out more about the effects of fed rising interest rate due to what's been happening to Dow Jones index. This video made it more confusing. The whole interest system worldwide is so convoluted no wonder nobody knows what's going on. And when there's a crash they just blame each other. These systems gives me an impression of a jenga tower... pending to tumble anytime
kevinseveneleven (4 months ago)
It's supposed to be confusing
Brad Kay (8 months ago)
im lost
WolfGirlSpice Roblox (10 months ago)
ThisIsNot AnAlias I
Rashid Mehmood (2 years ago)
Anyone?? I am a little bit confused- if fed increases the interest rate to slow down the pace of econimic growth as well as the increasing inflation rate, at the same time it will attract foreign investor to invest in the same currency which in turn increase the supply of money,.. Please help me understand this..if we speak about interest rate, which interest rate are we speak about??
YouTubosloven (2 years ago)
this system looks to me like an engine with a stupid, unstable design. an engine that's been upgraded with a quick-and-dirty solutions over the time, just to keep it running (= prevent operation-stop).
Kinkade (2 years ago)
Meanwhile, those who want to earn money in their savings account get the shaft due to Fed policy.
Sunny Choudhary (3 months ago)
+James Price early Christians didnt either.its perfectly good model for economy as long as there is no irrational inflation. And there is no irrational inflation as long as money is not created through debt(magic money) with interest rates.
James Price (3 months ago)
Hi is it true that Muslims who don't believe in interest rates in there country
Goose (2 years ago)
Seems to me that private banking is an unnecessary middle man. Nationalize the banks.
elreytriton (2 months ago)
+ThunderboltTangerine actually he only has to go to north dakota. they have a national bank
Kose Moja (5 months ago)
All banks are federal reserve controlled and designed to keep us in debt.
Heath Kitchen (5 months ago)
End the Fed. It's a private bank. We have no control over our money. Americans killed the fed before we will do it again. Research Jekyll Island.
yungmango (10 months ago)
Well, that seems to be the consequence regardless.. Look at the bailout. Taxpayers are paying for the private banks' irresponsible behavior. They're too big to fail.
Lady X (2 years ago)
How about in the case of Negative interest rates
Cassius SpaceTrain (1 year ago)
vordark trinity which in turn creates bank runs and a super demand for safe havens and.. literally safes. just ask Japan
vordark trinity (1 year ago)
A negative interest rate means the central bank and perhaps private banks will charge negative interest: instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank.
coolchris (2 years ago)
WSJ + FED = Boyfriends
coolchris (2 years ago)
WSJ and Feddy Fed are cozy. Send me a link...any link ...of your Mommy begging to differ... I could care less but now I'm curious? Regal me please. I'd love to see the proof. If so my praises will rain
Sarah Schreiber (2 years ago)
coolchris thats is bullshit wsj has talked so much shit on the Fed. i know because my mom works there
Parisian Goldfish (2 years ago)
looks scarily like a money laundering scheme.
Juan The Juan (2 years ago)
So the FED is here to help us right
circa blonk (2 years ago)
No one truly understands the economy and that us the problem. Too many complex variables - the more shit that can go wrong, the higher the chance of something going wrong. We need to return to a good-backed standard that is simply - "you can't spend what you don't have".
optimistic but realistic (3 months ago)
+john doe well put mate.
john doe (4 months ago)
You guys are not grasping what he means. A business can receive a loan to get started even under the gold standard. The loan couldn't be created out of thin air through fractional reserve banking, however. It would come from an investor who has accumulated excess money by saving or banks that hold excess reserves. This would diminish annual economic growth but it would make the economy sustainable and more stable which is preferable to the unsustainable monstrosity we have now.
The Apple (1 year ago)
BeoJack banks can still lend money with gold backed but it can’t go crazy like today
nasusanus (1 year ago)
i dont think he means to speak about how the interest work, i pretend he talks about the capitalism system where some peoples can get overly rich and some peoples are really poor. You have 2 differents opinions wich both are really arguable
Zim zam (2 years ago)
Jim Sigs (2 years ago)
End the federal reserve
john doe (4 months ago)
isawaturtle Where did you find these supposed national debt/US dollars in existence numbers? The last measurement of M0, M1 and M2 are not anywhere close to the amount of US national debt according to the Fed. M2 currently is 14.2 trillion while national debt is 21 trillion. The problem is overall debt. We can't support the rising debt levels without increasing the currency supply which in return causes inflation due to the fact that we aren't growing productivity at the same rate. In fact, the marginal productivity of currency inflation has peaked in the late 90s and since then has become negative. At the moment it takes the creation of 4 USD to get an increase of 1 USD in productivity from the economy. This is unsustainable and that's why the next crisis will be a debt crisis which has already begun in emerging markets. In my opinion a total collapse of the global debt bubble is imminent.
isawaturtle (1 year ago)
+Croatian .... First off the term "Printing money" is an obsolete term. It refers to the gold standard days or if Croatia started printing extra Euro. I am not going to talk about the EU as much as I dont have that much knowledge of the "ins" and outs". I just want see it dismantled. Monetary sovereign govts (US, Japan, AUS) Govt "borrowing" .... all govt "borrowing is, is swapping assets of varying liquidity to control interest rates. Govt deficit spending adds extra dollars to the reserve system putting downward pressure on interest rates. Bonds are offered to drain dollars (liquid assets) from the reserve system. Entities that buy bonds receive interest just as people would with a term deposit. As the economy grows, population grows and asset prices increase then you need more dollars in circulation.
Well yes it's fucked up, but I wanted to use it as analogy for your issue. Why wouldn't the FED be in same position as i this case Central bank and Croatian national bank? You have 50 states with different economies and the same dollar. I consider Kuna equivalent to Euro in this case and therefore no different than having the same currency as everybody else. Dollar/kuna charts look exactly the same as Dollar/Euro charts. My point here is still the fact that you always borrow money even when the economy is only expanding. What is the excuse for paying interest on growing economy? That's a serious criminal act at worst and stupid idea at best. I could ignore for a moment national debt and pretend that it doesn't really matter because money in circulation actually IS national debt. So what do you do when productivity increases? You print more money and therefore increase your debt by the factor of the economy growth. But you also pay interest on it so it's not really wise to ignore the debt even if we don't have to repay it. Also inflation makes everything muddy and hard to see as debt slowly dissolves as time passes. But the interest is in real time and that's the problem.
isawaturtle (1 year ago)
+Croatian ... the EU is different ... its a non monetary sovereign ... its a truly fucked up concept and personally cant wait for it to fall apart ... Brexit is a start, Greece should of left. Germany couldnt conquer countries in 2 world wars so it turned to trade wars.
TGGeko (3 years ago)
I've got a bad feeling about this
Supernova (1 year ago)
You always have a bad feeling about something private jenkins!
john smith (3 years ago)
This looks like a recipe for an economic collapse because the fed is expecting the economy to grow.  How is the economy suppose to improve when restrictions are imposed on small business and big banks hoard the money?  Did we learn nothing from 08'?  Big banks need to be taxed and pay the united states back that money.  Give us our bail out.
Mark Aven (1 year ago)
good point
Tom Jowers (3 years ago)
It's still a scheme any way you slice it.
Travis G (3 years ago)
+Tom Jowers Scam
Filip Ivanov (3 years ago)
A very good (simplified) explanation of complex monetary policy - thank you.
Wallace Rose (3 years ago)
Than you for for the video. Great job! Yes I second the vote for more educational videos like this one.
aforeffort747 (3 years ago)
So how does an annual inflation rate deplete the purchase power of my deposits/investment? As the people that give currency it's value any rate above 0 hurts us, kind of opposite of the lenders!
steve k (2 years ago)
LibertyNow people dont want deflation becausr the home is there biggest investment underwater housing caused by deflatiin would be a massive problem. deflation more then 0.5 percent would lead to alot of problems this country is invested in assuming inflation will always be there(oherwise you dont buy things with nothing down). agree thought the goverment screwed up causing the depression
LibertyNow (2 years ago)
+SAIDsoe US had deflation throughout the 19th century and was the fastest growing economy in the world. The reason people fear deflation is because of the great depression. But the great depression was not caused by deflation, deflation was caused by the great depression. Keynesians got it wrong, Austrians got it right.
Twisted Flames (2 years ago)
+SAIDsoe some deflation is considered "good deflation."
SP3NT (3 years ago)
you're asking a very complex question... For starters I would say most economists (with the exception of austrians) believe that a small rate of inflation is healthy for consumers (menu prices) and is far better then the alternative which is the risk of a deflationary cycle.

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