WEBVTT - Why the Federal Reserve Crisis Matters 0:00:01.680 --> 0:00:06.359 Call Zone Media. 0:00:06.600 --> 0:00:10.719 Welcome to it could Happen here, a podcast about which 0:00:10.840 --> 0:00:15.560 calamity this country and many others are going through. This week, 0:00:15.720 --> 0:00:20.160 I am your host, Mia Wong, and today we are 0:00:20.239 --> 0:00:25.360 going to be talking about the Federal Reserve. Now, those 0:00:25.400 --> 0:00:28.600 of you who have listened to Executive Disorder are aware 0:00:28.840 --> 0:00:32.240 that a bit over a week ago, as this episode 0:00:32.320 --> 0:00:37.160 is being released, Federal Reserve Chairman jirom Age Powell released 0:00:37.720 --> 0:00:44.280 what again I can really only describe as someone escaping 0:00:44.320 --> 0:00:48.120 from a kidnapping and releasing a video about it in 0:00:48.200 --> 0:00:54.560 which he discussed a Justice Department grand jury sabina and 0:00:54.640 --> 0:00:59.480 a threat to indict him over cost overruns on a 0:00:59.600 --> 0:01:04.720 new fe Federal Reserve building. Now, Jerome Powell has claimed 0:01:05.000 --> 0:01:10.639 that these charges are really about removing him and about 0:01:10.680 --> 0:01:16.320 eliminating the independence of the Federal Reserve. He also claims 0:01:16.360 --> 0:01:22.160 that he was directly threatened with these charges unless he 0:01:22.360 --> 0:01:27.680 was willing to adjust the Federal Reserve policy to fall 0:01:27.760 --> 0:01:33.440 in line with the Trump administration. And this is an 0:01:33.480 --> 0:01:39.360 astonishing video for a number of reasons. One is that 0:01:39.400 --> 0:01:42.080 it's in a lot of ways one of the most 0:01:42.160 --> 0:01:46.759 direct points of defiance that a government official has taken 0:01:46.880 --> 0:01:54.320 directly to the presidents. It's also astonishing because it is 0:01:54.480 --> 0:01:59.360 actually technically the second time that Trump has tried to 0:01:59.360 --> 0:02:01.720 do something like this to a member of the Federal 0:02:01.800 --> 0:02:06.640 Reserve Board. Because as you're listening to this, the Supreme 0:02:06.680 --> 0:02:11.920 Court has been hearing arguments about Trump's attempt to fire 0:02:12.400 --> 0:02:15.280 one of the other members of the Federal Reserve Board, 0:02:15.280 --> 0:02:20.040 a woman named Lisa Cook. Now, obviously I don't know 0:02:20.160 --> 0:02:24.480 yet what the outcome of that deliberation is going to be. 0:02:24.639 --> 0:02:30.520 It seems right now that the Supreme Court is uncompelled 0:02:30.680 --> 0:02:34.959 with Trump's ability to fire a Federal Reserve Board member 0:02:35.200 --> 0:02:41.360 over really truly very trumped up charges about mortgage fraud. 0:02:41.800 --> 0:02:45.880 I'm going to quote here from the Supreme Court in 0:02:45.960 --> 0:02:50.120 what has become a very important statement. Quote, the Federal 0:02:50.200 --> 0:02:54.800 Reserve is a uniquely structured, quasi private entity that follows 0:02:54.840 --> 0:02:57.600 in the distinct tradition of the First and Second Banks 0:02:57.600 --> 0:03:01.720 of the United States. Importance of this statement is that 0:03:01.760 --> 0:03:04.720 the Supreme Court has been willing to allow Trump to 0:03:04.840 --> 0:03:08.120 fire the heads of other you know, what are supposed 0:03:08.160 --> 0:03:10.640 to be independent entities, right, or fire members of what 0:03:10.639 --> 0:03:14.640 are supposed to be independent federal agencies. He's been able 0:03:14.680 --> 0:03:16.880 to just completely illegally, by the way, but with the 0:03:16.919 --> 0:03:20.160 approval the Supreme Court been able to fire a lot 0:03:20.360 --> 0:03:23.639 of people who were appointed under the Biden administration to 0:03:25.120 --> 0:03:30.600 posts in independent regulatory agencies. However, so far the Supreme 0:03:30.680 --> 0:03:35.920 Court has balked at doing this for the Federal Reserve. Now, 0:03:36.080 --> 0:03:41.080 why is that and why is this entire thing so important? 0:03:41.840 --> 0:03:44.680 To understand that question and to understand why I've spent 0:03:44.760 --> 0:03:48.680 so much time talking about what in the grand scheme 0:03:48.720 --> 0:03:52.560 of things seems like a kind of minor, you know, 0:03:52.800 --> 0:03:56.440 just like another example of Trump attempting to use the 0:03:56.520 --> 0:04:01.760 judiciary and investigations to go after his political enemies. We 0:04:02.400 --> 0:04:05.960 need to talk about what the Federal Reserve is and 0:04:06.080 --> 0:04:13.000 what it does, because this is ourguably the central institution 0:04:13.200 --> 0:04:19.520 of global capitalism and its importance in maintaining the global 0:04:19.520 --> 0:04:25.280 capitalist economy is to a large extent. The reason why 0:04:26.520 --> 0:04:30.760 this is the point at which US senators, who are 0:04:30.760 --> 0:04:34.480 aligned with Trump on every other issue have actively taken 0:04:34.560 --> 0:04:38.760 a stand against this sort of prosecution of Jerome Powell 0:04:38.920 --> 0:04:43.120 is why the Supreme Court seems to not be interested 0:04:43.160 --> 0:04:46.039 in allowing Trump to wield the executive power. And this 0:04:46.240 --> 0:04:49.240 is because fucking with the Federal Reserve is fucking with 0:04:49.320 --> 0:04:55.320 the money. So what is the Federal Reserve? The Federal Reserve, 0:04:55.839 --> 0:05:00.560 to put it mildly, is an extremely confusing entity. So 0:05:01.240 --> 0:05:04.520 if you remember back to a few minutes ago when 0:05:04.560 --> 0:05:08.799 I said that the Supreme Court said that the Federal 0:05:08.880 --> 0:05:13.880 Reserve is a uniquely structured quasi private entity, we could 0:05:13.920 --> 0:05:16.760 ask the question, Okay, so it's a quasi private entity. 0:05:17.040 --> 0:05:19.440 Is it a public entity? Or is it a private entity? 0:05:20.120 --> 0:05:22.880 This is a relatively simple question. Here is the answer 0:05:22.920 --> 0:05:27.720 provided by the Saint Louis Federal Reserve's website quote. The 0:05:27.720 --> 0:05:31.320 Federal Reserve Banks are not a part of the federal government, 0:05:31.320 --> 0:05:34.520 but they exist because of an Act of Congress. Their 0:05:34.560 --> 0:05:37.960 purpose is to serve the public. So is the FED 0:05:38.279 --> 0:05:43.520 private or public? The answer is both. While the Board 0:05:43.520 --> 0:05:47.520 of Governors is an independent government agency, the Federal Reserve 0:05:47.600 --> 0:05:52.400 Banks are set up like private corporations. Member banks hold 0:05:52.480 --> 0:05:56.640 stock in the Federal Reserve and earn dividends. Holding this 0:05:56.760 --> 0:06:00.360 stock does not carry with it the control and financial 0:06:00.400 --> 0:06:05.080 interests given to holders of common stock and for profit organizations. 0:06:05.440 --> 0:06:10.320 The stock may not be sold or pleasures collateral for loans. Okay, 0:06:10.600 --> 0:06:13.599 So here's the Federal Reserve's answer to is it a 0:06:13.640 --> 0:06:17.560 public or private entity? Is both. The Board of Governors 0:06:17.640 --> 0:06:19.840 is an independent agency. The Federal Reserve banks are set 0:06:19.880 --> 0:06:22.880 up like private corporations. So it's sort of both. Okay, 0:06:23.080 --> 0:06:26.880 question settled, it's both. We can move on. Wait, hold on, 0:06:27.080 --> 0:06:31.240 I am receiving word that the Federal Reserve has comments 0:06:31.279 --> 0:06:34.359 on this idea. Hold on, hold on, let me, let me. 0:06:34.440 --> 0:06:39.160 Let me turn to the Federal Reserve, the National Federal 0:06:39.240 --> 0:06:43.360 Reserves website, which has a comment on the idea that 0:06:43.520 --> 0:06:48.360 the Federal Reserve banks or private entities. Okay, here we go, 0:06:48.440 --> 0:06:53.480 Here we go quoting them. Now, some observers mistakenly consider 0:06:53.800 --> 0:06:57.360 the Federal Reserve to be a private entity because the 0:06:57.400 --> 0:07:02.800 Reserve banks are organized similar to private corporations. For instance, 0:07:02.880 --> 0:07:05.760 each of the twelve reserve banks operates within its own 0:07:05.760 --> 0:07:09.600 particular geographic area or district of the United States, and 0:07:09.680 --> 0:07:13.080 each is incorporated, is separately incorporated and has its own 0:07:13.120 --> 0:07:17.400 board of directors. Commercial banks that are members of the 0:07:17.440 --> 0:07:22.680 Federal Reserve system hold stock in their district's reserve bank. Now, okay, 0:07:23.200 --> 0:07:25.680 let's look at what we have here. These are two 0:07:25.760 --> 0:07:31.240 different websites run by two different parts of the Federal Reserve, 0:07:32.120 --> 0:07:36.040 one of which says that the Federal Reserve Banks are 0:07:36.080 --> 0:07:38.440 not part of the of the federal government, but they 0:07:38.440 --> 0:07:40.880 exist because of an Act of Congress. So is the 0:07:40.880 --> 0:07:44.360 Fed public or private? The answer is both, because the 0:07:44.360 --> 0:07:47.400 Federal Reserve banks are set up like private corporations. That's 0:07:47.520 --> 0:07:52.080 the Saint Louis are Reserve. Now, the National Federal Reserve 0:07:52.360 --> 0:07:56.080 says quote, some observers mistakenly consider the Federal Reserve to 0:07:56.120 --> 0:07:58.560 be a private entity because the reserve banks are organized 0:07:58.600 --> 0:08:02.040 similar leader private corporations. So you can see that we 0:08:02.080 --> 0:08:06.720 are dealing here with an absolute goddamn mess because if 0:08:06.760 --> 0:08:11.320 you read the two websites of different federal versions of 0:08:11.320 --> 0:08:14.240 the Federal Reserve, National and sort of branches of the 0:08:14.240 --> 0:08:18.680 Federal Reserve, they say different things about what it is, 0:08:18.840 --> 0:08:22.360 and they sound like they're arguing each other. Now, Okay, 0:08:22.400 --> 0:08:26.360 I am doing this because it's funny. Technically both of 0:08:26.400 --> 0:08:28.360 these agree with each other. But this is a shit 0:08:28.400 --> 0:08:33.079 show because part of the purpose of the Federal Reserve 0:08:33.679 --> 0:08:36.280 is to be an entity that does research and distribute 0:08:36.280 --> 0:08:39.679 information to the public, and its websites can't agree on 0:08:39.679 --> 0:08:42.840 what it is now again, I'm being slightly pedantic here. 0:08:42.920 --> 0:08:46.120 Technically both versions of this story, do you say that 0:08:46.320 --> 0:08:49.439 this is both a public and a private entity? Sort 0:08:49.480 --> 0:08:53.520 of now again, And this is a basic question about 0:08:53.520 --> 0:08:56.680 the Federal Reserve. Is it a public or private entity? 0:08:57.320 --> 0:09:00.920 And they can't agree on it. And this is, to 0:09:01.000 --> 0:09:04.640 use a technical term, a fucking nightmare, because again, the 0:09:04.679 --> 0:09:07.800 actual answer is that it is sort of both. The 0:09:07.840 --> 0:09:11.880 banks themselves are like technically private, but they're run by 0:09:11.880 --> 0:09:14.760 the Board of Governors, which is technically a government agency, 0:09:14.880 --> 0:09:18.920 and they were established by the government. So tending to 0:09:18.960 --> 0:09:23.840 sort out this colossal mess has inside of academia. This 0:09:23.880 --> 0:09:27.000 has caused a change in the conception of what the 0:09:27.040 --> 0:09:32.760 state is because what is this crap? So okay, let's 0:09:32.840 --> 0:09:38.640 actually run through the structure of the Federal Reserve. So importantly, 0:09:38.679 --> 0:09:44.360 the Federal Reserve is kind of three entities in a way. 0:09:44.400 --> 0:09:46.960 You can think about this like the Holy Trinity. Right. 0:09:47.600 --> 0:09:51.439 You have the twelve Federal Reserve banks, and those banks 0:09:51.559 --> 0:09:56.040 are collectively managed by what are called governors who serve 0:09:56.120 --> 0:09:58.640 on what is called the Board of Governors, which is 0:09:58.920 --> 0:10:02.679 the second entity. And then there's also the Federal Open 0:10:02.720 --> 0:10:06.800 Market Committee, which for our purposes, we don't care about 0:10:06.840 --> 0:10:10.160 that much. But is composed of the seven members of 0:10:10.160 --> 0:10:12.280 the Board of Governors, and this is the quote defend itself. 0:10:13.120 --> 0:10:15.560 Is composed of the seven members of the Board of Governors, 0:10:15.559 --> 0:10:17.560 the president of the Federal Reserve Bank of New York, 0:10:17.600 --> 0:10:20.120 and four of the remaining eleven reserve bank presidents. You 0:10:20.240 --> 0:10:23.720 serve one year terms on a rotating basis. So, okay, 0:10:23.800 --> 0:10:28.360 we have three entities, right. We have the decentralized federal 0:10:28.440 --> 0:10:31.760 Reserve banks, which there's twelve of them. They cover different 0:10:31.760 --> 0:10:35.320 geographic regions of the country. We have the Board of Governors, 0:10:35.480 --> 0:10:38.600 which oversees them. And the Board of Governors is the 0:10:38.640 --> 0:10:42.679 part that is technically a government agency. And these governors 0:10:43.240 --> 0:10:48.120 are importantly, for our purposes, nominated by the President and 0:10:48.360 --> 0:10:52.560 confirmed by Congress. And this Board of Governors. The purpose 0:10:52.600 --> 0:10:56.360 of this Board of Governors is to sort of run 0:10:56.840 --> 0:10:59.679 all of it. Now they're running all of this at 0:10:59.720 --> 0:11:03.680 a level. Each of those twelve federal Reserve banks also 0:11:03.679 --> 0:11:06.080 have their own border directors and their own structures that 0:11:06.120 --> 0:11:10.960 each run all of the different banks. So this is complicated. 0:11:11.200 --> 0:11:15.920 And again, why talking about the Federal Reserve is so complicated? 0:11:16.280 --> 0:11:19.160 If you just like start looking at political stuff people 0:11:19.200 --> 0:11:22.000 have written about the Federal Reserve. It's a nightmare. Like 0:11:22.040 --> 0:11:24.880 if you try to like do your own research, your 0:11:24.920 --> 0:11:27.800 options are unless you know where to look, right, your 0:11:27.800 --> 0:11:30.360 options are at the Federal Reserve itself, which is actually 0:11:31.120 --> 0:11:37.280 not a terrible resource for the most part, because again, 0:11:37.880 --> 0:11:41.720 conducting economic research is one of the points of the 0:11:41.760 --> 0:11:47.640 Federal Reserve, but it's not ideal. And then also immediately 0:11:47.679 --> 0:11:50.320 you get a bunch of very weird anti semitic conspiracy 0:11:50.360 --> 0:11:56.439 theories about sound money and the sort of rand pall 0:11:56.720 --> 0:11:59.719 people who want to eliminate the Federal Reserve because they're 0:12:00.120 --> 0:12:07.040 mad at the US dollar not being based on gold. Nightmare, terrible, 0:12:07.200 --> 0:12:10.840 zero out of ten. We absolutely hate it. Now, speaking 0:12:10.840 --> 0:12:13.600 of things that we absolutely hate, it is not buying 0:12:13.800 --> 0:12:30.600 these products and services. We are back. So, all right, 0:12:30.679 --> 0:12:33.760 we've gone over the structure of the Federal Reserve. So 0:12:33.920 --> 0:12:36.719 what does the Federal Reserve actually do? And why are 0:12:36.720 --> 0:12:40.800 we talking about this at such length. If you know 0:12:41.000 --> 0:12:43.760 one thing about the FED, it's that the FED can 0:12:43.800 --> 0:12:47.079 print money. You may or may not remember the FED 0:12:47.160 --> 0:12:51.800 printing money memes from twenty twenty in that sort of era, 0:12:52.800 --> 0:12:55.480 and this is one of the conceptions of the FED. 0:12:55.559 --> 0:12:59.079 That is true. The Federal Reserve is the entity given 0:12:59.200 --> 0:13:03.240 power by the US government to print money. So when 0:13:03.760 --> 0:13:07.960 dollar bills are created, the Treasury commissions the FED to 0:13:08.040 --> 0:13:12.400 print the bills. Technically speaking, coins are stubmitted by the Treasury, 0:13:12.760 --> 0:13:16.880 which is a whole side showed Tangent that I had 0:13:16.920 --> 0:13:18.800 to cut out of this story because it's like twenty 0:13:18.800 --> 0:13:22.040 minutes long. But you know, if you are holding a 0:13:22.120 --> 0:13:25.839 US dollar, basically the odds are very very very very 0:13:25.960 --> 0:13:28.920 very very very very good. The way you were holding 0:13:29.080 --> 0:13:33.120 is technically a Federal Reserve. Note, Now what does that mean? 0:13:33.160 --> 0:13:35.200 Be a what is happening here? Why is it the 0:13:35.240 --> 0:13:38.520 government doesn't print money? Why is it this quasi private 0:13:38.679 --> 0:13:43.000 public entity that's printing the money. Now, what's happening here 0:13:43.600 --> 0:13:48.280 is slightly more complex than FED money printer. An American 0:13:48.400 --> 0:13:53.920 dollar is US debt. Right, What you are holding in 0:13:53.960 --> 0:13:57.880 your hands is a promise from the US government to 0:13:57.960 --> 0:14:01.320 pay one dollar to the Federal l The Federal Reserve 0:14:01.640 --> 0:14:05.520 is having this money distributed and is having this debt distributed. 0:14:05.600 --> 0:14:09.079 And this is what US currency is. It is based 0:14:09.240 --> 0:14:13.040 on debt held by In this case, the Federal Reserve 0:14:13.120 --> 0:14:16.120 banks which have been given a monopoly to print this 0:14:16.240 --> 0:14:20.200 debt as Federal Reserve notes, and the Federal Reserve can 0:14:20.400 --> 0:14:22.600 just sort of create this. It's it's also worth noting that, 0:14:22.640 --> 0:14:24.440 you know, when we talk about the FED creating money, 0:14:24.520 --> 0:14:27.680 I mean obviously like it prints money for steff commissioned 0:14:27.680 --> 0:14:29.600 by the Treasury, so you can have more bills in circulation. 0:14:29.680 --> 0:14:33.720 But most of the actual money that's being created or 0:14:33.800 --> 0:14:36.760 not created is you know, this is all happening digitally. 0:14:36.960 --> 0:14:41.240 It is funds appearing in the bank accounts of the 0:14:41.280 --> 0:14:44.920 banks that use the Federal Reserve. So the other thing 0:14:45.040 --> 0:14:49.480 you may have heard about the FED is the FED 0:14:49.560 --> 0:14:52.640 funds rate or what's called the FED interest rates, or 0:14:52.760 --> 0:14:54.520 you know, you'll hear a bunch of talk about the 0:14:54.520 --> 0:14:58.320 FED setting interest rates. So to understand what this is, 0:14:58.400 --> 0:15:00.680 we need to kind of take aus step back and 0:15:00.720 --> 0:15:05.720 look at what these banks actually are. The way this 0:15:05.800 --> 0:15:08.480 is commonly described is that the FED is the bank 0:15:08.520 --> 0:15:11.480 of banks, right, which is when a bank needs alone, 0:15:11.680 --> 0:15:14.000 they go to the Federal Reserve, and banks put their 0:15:14.080 --> 0:15:16.280 money in the Federal Reserve and they use it to 0:15:16.320 --> 0:15:20.960 move their money around. That's true enough for our purposes. 0:15:21.560 --> 0:15:23.400 I should also state here that a lot of what 0:15:23.480 --> 0:15:26.560 I'm going to be saying this episode, particularly from here forward, 0:15:27.480 --> 0:15:33.600 is technically probably a simplification of what's actually happening, because 0:15:34.440 --> 0:15:39.960 the mechanisms here are very, very complicated. But okay, so 0:15:40.600 --> 0:15:43.240 the FED interest rate, right, this is the thing that 0:15:43.360 --> 0:15:46.440 is the source of all of the tension here. Right. 0:15:47.160 --> 0:15:50.800 What Trump is pissed about to a large extent is 0:15:50.800 --> 0:15:54.400 that he thinks that Fed interest rates are too high 0:15:54.440 --> 0:15:56.480 and he wants them to be lower because he thinks 0:15:56.560 --> 0:15:59.960 this will cause the economy to grow more. So, okay, 0:16:00.360 --> 0:16:03.000 what does that mean is what is the FED interest rate? 0:16:03.760 --> 0:16:06.280 The way this is explained to the public is that 0:16:06.320 --> 0:16:10.400 the FED sets the cost of borrowing. That's like true, 0:16:10.880 --> 0:16:14.680 kind of basically, there is a rate that is decided 0:16:14.720 --> 0:16:18.760 on by the Federal Reserve Board. On a more technical level, though, 0:16:19.320 --> 0:16:23.200 it's slightly more complicated than that. So when you hear 0:16:23.280 --> 0:16:27.280 someone talk about the Fed's interest rate, what they are 0:16:27.320 --> 0:16:31.200 talking about is the Federal funds rate. And technically what 0:16:31.200 --> 0:16:35.360 they're talking about is the target Federal funds rate. So 0:16:35.560 --> 0:16:38.720 I'm going to quote from the Federal Reserve self quote 0:16:39.320 --> 0:16:43.280 the effective Federal funds rate is the interest rate at 0:16:43.280 --> 0:16:49.960 which depository institutions, banks, savings institutions, thrifts, and credit unions 0:16:50.480 --> 0:16:54.720 and government sponsored enterprises borrow from and lend to each 0:16:54.760 --> 0:16:59.320 other overnight to meet short term business needs. The target 0:16:59.440 --> 0:17:02.320 for the Federal funds rate, which is set by the 0:17:02.320 --> 0:17:06.520 Federal Open Market Committee, has varied widely over the years 0:17:06.560 --> 0:17:10.239 in response to prevailing economic conditions. So yeah, Also, by 0:17:10.280 --> 0:17:12.640 the way, it is technically the Federal Open Market Committee 0:17:12.640 --> 0:17:16.560 that sets the fund rate. But okay, when we're talking 0:17:16.600 --> 0:17:22.879 about the FED setting the interest rates, right, there's kind 0:17:22.920 --> 0:17:28.640 of two things going on. So the effective federal funds rate, 0:17:28.720 --> 0:17:31.639 which is the thing that they're trying to control, is 0:17:31.680 --> 0:17:34.280 the interest rate at which all of these different banks 0:17:34.280 --> 0:17:36.199 that have their money in here are all using it 0:17:36.240 --> 0:17:39.320 to lend to each other overnight. Through the money they 0:17:39.320 --> 0:17:41.840 have the Federal reserve, they're all lending it to each other. 0:17:42.400 --> 0:17:45.440 The average of the rate of interest that wistre lending 0:17:45.440 --> 0:17:48.439 to each other overnight, the average of that rate is 0:17:48.440 --> 0:17:50.600 the Federal funds rate. When people talk about like the 0:17:50.600 --> 0:17:52.959 interest rates like three point two percent or whatever, what 0:17:53.000 --> 0:17:54.920 the FED is trying to do is make sure that 0:17:55.040 --> 0:17:57.880 at the end of the night. This effective federal funds rate, 0:17:57.960 --> 0:18:00.119 which is the rate that all these banks will lending 0:18:00.160 --> 0:18:03.400 each other money at, is at that rate. But they 0:18:03.400 --> 0:18:06.639 don't actually technically directly have control of this, because it 0:18:06.680 --> 0:18:10.280 is to be clear, the average rate of which all 0:18:10.320 --> 0:18:12.520 of these banks are lending to each other. What the 0:18:12.560 --> 0:18:17.760 FED is manipulating directly usually is the interest on reserve 0:18:17.840 --> 0:18:21.680 balances or IRB. So this is the thing the FED 0:18:21.720 --> 0:18:24.840 does control. The interest on reserve balances is how much 0:18:24.880 --> 0:18:27.040 interest they pay out for just putting your money in 0:18:27.080 --> 0:18:29.240 the FED and leaving it there. I'm going to quote 0:18:29.280 --> 0:18:33.119 the FED again. The Fed's primary tool for influencing the 0:18:33.119 --> 0:18:36.320 federal funds rate is the interest the FED pays on 0:18:36.440 --> 0:18:40.359 funds that banks hold as reserve balances at their Federal 0:18:40.440 --> 0:18:44.160 Reserve Bank, which is the interest on reserve balance's rate. 0:18:44.680 --> 0:18:47.840 Because banks are unlikely to lend funds in the federal 0:18:47.880 --> 0:18:50.239 funds market for less than they get paid on their 0:18:50.240 --> 0:18:53.879 reserve balances at the Federal Reserve, the interest rate on 0:18:53.960 --> 0:18:56.800 reserve balances is an effective tool for guiding the federal 0:18:56.840 --> 0:19:02.800 funds rate. Okay, Mia, you've been spelled gibberish for many minutes. Now, 0:19:03.000 --> 0:19:06.359 what the fuck does that mean. So what the FED 0:19:06.520 --> 0:19:09.320 is normally doing is all right, So you put your 0:19:09.440 --> 0:19:11.439 money in a bank, right, and that bank has an 0:19:11.480 --> 0:19:14.199 interest rate, and it pays you out that amount of 0:19:14.240 --> 0:19:17.080 interest at the end of the year, right, And that's 0:19:17.119 --> 0:19:19.720 the money that you are making for putting your money 0:19:19.720 --> 0:19:24.080 in this corporation. The FED also has their own interest 0:19:24.160 --> 0:19:26.959 on reserve balances, so that they have their own interest 0:19:27.040 --> 0:19:29.199 rate for how much money you can get from just 0:19:29.280 --> 0:19:33.840 leaving your money in the Federal Reserve. And the theory, 0:19:33.880 --> 0:19:36.320 and this is like you know true, is that banks 0:19:36.359 --> 0:19:39.080 aren't going to lend each other money at interest rates 0:19:39.119 --> 0:19:44.080 that are lower than what you can get from the FED, 0:19:44.119 --> 0:19:46.440 because otherwise you just leave your money in the FED 0:19:46.960 --> 0:19:49.800 and you get them out amount of money. So if 0:19:49.840 --> 0:19:54.159 you're going to you know, loan someone something, right, the 0:19:54.160 --> 0:19:57.479 interest that's being charged here is going to be higher 0:19:57.520 --> 0:19:59.480 than the FED rate. And that's when we talk about 0:19:59.560 --> 0:20:02.960 FED said interest rates. That's what's happening on a technical level, 0:20:03.720 --> 0:20:06.280 and this is actually very important in the global economy 0:20:06.320 --> 0:20:09.240 because what this does and this is where everything gets 0:20:09.280 --> 0:20:11.880 extremely murky. And I'm going to go to a very 0:20:12.000 --> 0:20:15.520 very high level of abstraction down from sort of the 0:20:15.960 --> 0:20:20.679 very low technical details. Now, in theory, what this means is, 0:20:20.920 --> 0:20:23.399 this is how easy it is to obtain money to 0:20:23.600 --> 0:20:27.280 like invest in stuff. Right, this sets the rate at 0:20:27.320 --> 0:20:30.600 which you can borrow money. And in theory, if you 0:20:30.640 --> 0:20:34.760 have a very very low interest rate, right, if the 0:20:34.800 --> 0:20:37.760 FED funds rate is really low, then is very very 0:20:37.880 --> 0:20:39.719 cheap and easy to get a bunch of money, and 0:20:39.760 --> 0:20:42.399 that money flows to the economy and theoretically that money 0:20:43.000 --> 0:20:46.439 will you know, be used to invest in stuff and 0:20:46.480 --> 0:20:49.359 that will increase economic growth. Okay, So why wouldn't the 0:20:49.359 --> 0:20:51.879 FED rate just always be zero? And the answer to 0:20:51.880 --> 0:20:54.560 that is that the FED, as an institution and this 0:20:54.760 --> 0:20:58.239 is part of its legal framework that established it, is 0:20:58.320 --> 0:21:02.280 also trying to control inflation. And the theory effectively is 0:21:02.320 --> 0:21:04.359 that if you leave these things for too low for 0:21:04.440 --> 0:21:07.520 too long, it will cause inflation, and it will cause 0:21:07.560 --> 0:21:11.480 economic bubbles that are not actually supported by the return 0:21:11.520 --> 0:21:15.000 on investment. Because if you can just always continuously borrow 0:21:15.119 --> 0:21:18.000 money for zero dollars, then you can just invest in 0:21:18.040 --> 0:21:20.560 anything as long as the return is like slightly more 0:21:20.600 --> 0:21:24.640 than like nothing. However, Comma raising interest rates is used 0:21:24.680 --> 0:21:27.399 as a way to try to slow economic growth in 0:21:27.520 --> 0:21:32.960 order to not have inflation result, right, and also to 0:21:32.960 --> 0:21:36.760 not have there be sort of speculative bubbles. And right 0:21:36.800 --> 0:21:39.080 now we've entered a period in which interest rates have 0:21:39.119 --> 0:21:43.160 been rising after a pretty prolonged period of interest rates 0:21:43.240 --> 0:21:45.919 being effectively zero, like following the two thousand and eight 0:21:45.920 --> 0:21:48.840 financial collapse. They've been really low for like a while 0:21:49.040 --> 0:21:51.159 for some stuff in the nineties that we're going to 0:21:51.200 --> 0:21:54.160 get you later. But this is basically the primary dispute, 0:21:54.320 --> 0:21:57.479 which is that Okay, now, obviously the FED is to 0:21:57.480 --> 0:22:00.399 some extent a political actor. But the question or is 0:22:00.760 --> 0:22:02.600 who is going to get to set these sort of 0:22:02.640 --> 0:22:05.560 interest rates? Right? Is it going to be the President 0:22:05.600 --> 0:22:08.320 of the United States? Right? Is it going to be 0:22:08.359 --> 0:22:11.000 that Donald Trump can just be like, oh, economy look bad, 0:22:11.160 --> 0:22:14.720 turned down the interest rate? Or is it going to 0:22:14.760 --> 0:22:17.160 be the Federal Reserve itself, which is how it presently 0:22:17.200 --> 0:22:22.639 functions running this And that's what FED independence means. So 0:22:22.720 --> 0:22:27.280 what is that stake? Here is one of the defining 0:22:28.080 --> 0:22:32.200 the defining mechanisms of sort of economic control, of control 0:22:32.240 --> 0:22:34.280 over the function of the economy. You know that this 0:22:34.359 --> 0:22:37.639 is called like a macroeconomic policy lever Right, This is 0:22:38.160 --> 0:22:42.880 one of the largest, most important and most powerful tools 0:22:42.920 --> 0:22:46.199 that exists in the entire world economy for managing and 0:22:46.280 --> 0:22:50.479 regulating the American economy. And the question is is this 0:22:50.520 --> 0:22:54.879 going to remain with this sort of quasi technocratic, independent 0:22:55.040 --> 0:22:57.360 staff or is it going to be directly set by 0:22:57.400 --> 0:23:01.399 the presidents? And that is a huge fucking deal because, 0:23:01.440 --> 0:23:04.080 as you mentioned last time I talked about this, there 0:23:04.119 --> 0:23:07.560 have been times where presidents have gotten control over central banks. 0:23:07.800 --> 0:23:10.000 For example, the sort of scare story that everyone is 0:23:10.000 --> 0:23:15.439 talking about is Turkey where Airdwan, their effectively dictatorial leader, 0:23:15.880 --> 0:23:19.840 managed to break the independence of his own central bank 0:23:20.040 --> 0:23:25.920 and inflation rates are now merely forty percent. So this 0:23:25.960 --> 0:23:29.440 is what's at stake. It's who gets to control this thing. 0:23:30.359 --> 0:23:33.760 Is it Donald Trump or is it the Federal Reserve. 0:23:34.400 --> 0:23:35.960 Now we are going to go to ads and we 0:23:36.000 --> 0:23:38.880 are going to come back and talk a bit more 0:23:38.960 --> 0:23:53.040 about some of the nightmares that can happen here. Now. Okay, 0:23:53.119 --> 0:23:55.240 so we've been talking mostly about the Fed interest rate 0:23:55.280 --> 0:23:57.640 because that is most of what it does. Well, that's 0:23:57.640 --> 0:24:00.520 not most of what it does. That's the most important 0:24:00.640 --> 0:24:03.560 thing that it does on a political level in terms 0:24:03.640 --> 0:24:09.119 of you know, this is why Donald Trump wants it However, Comma, 0:24:09.320 --> 0:24:12.800 the FED does a bunch of other shit, like, for example, 0:24:13.240 --> 0:24:15.879 a whole bunch of the world's gold supply owned by 0:24:15.920 --> 0:24:17.920 a bunch of countries across the world sits in a 0:24:18.040 --> 0:24:22.959 vault under the Federal Reserve building. The FED has a 0:24:23.160 --> 0:24:27.360 balance sheet right of like the assets that it owns, 0:24:27.400 --> 0:24:31.639 and that balance sheet is right now about six and 0:24:31.680 --> 0:24:36.119 a half trillion dollars. The payment system that the FED 0:24:36.200 --> 0:24:41.760 maintains has two trillion dollars a day moving through it. 0:24:41.920 --> 0:24:45.639 Right this payment infrastructure, the infrastructure of the Federal Reserve 0:24:46.119 --> 0:24:51.320 is the core of the functioning of the entire American 0:24:51.400 --> 0:24:55.119 banking system. Like I kind of emphasize this enough, and 0:24:55.200 --> 0:24:58.520 this is also you know, important on a macro international level, right, 0:24:58.600 --> 0:25:04.440 like this is functioning sort of normally. Is the difference 0:25:04.480 --> 0:25:08.280 between capitalism working kind of normally, which is not good 0:25:08.359 --> 0:25:13.159 but is working and did not working and Trump is 0:25:13.200 --> 0:25:16.240 trying to take control of it. And again, this is 0:25:16.240 --> 0:25:19.479 a guy who wants to invade Greenland, and she is 0:25:19.520 --> 0:25:22.800 trying to take control over one of the most powerful 0:25:23.160 --> 0:25:28.160 economic institutions that has ever existed in human history. So 0:25:28.600 --> 0:25:30.400 these are the sort of the stakes of the fight 0:25:30.480 --> 0:25:32.840 that's happening here, because again, the FED is supposed to 0:25:32.840 --> 0:25:36.680 be an independent entity, right, The President is not supposed 0:25:36.680 --> 0:25:38.720 to be able to order the FED to just do 0:25:38.880 --> 0:25:42.119 whatever it wants. And this is what's at stake with 0:25:42.720 --> 0:25:45.920 Trump trying to fire one of these Reserve Board presidents, 0:25:46.080 --> 0:25:50.080 with Trump trying to prosecute the current head of the 0:25:50.080 --> 0:25:54.119 Federal Reserve and use that threat to bring the FED 0:25:54.200 --> 0:25:57.240