1 00:00:01,440 --> 00:00:04,240 Speaker 1: Welcome to Stuff you Should Know, a production of I 2 00:00:04,360 --> 00:00:13,640 Speaker 1: Heart Radio. Hey, and welcome to the podcast. I'm Josh Clark, 3 00:00:13,680 --> 00:00:16,840 Speaker 1: and there's Charles W. Chuck Bryant seated directly across me, 4 00:00:17,120 --> 00:00:21,680 Speaker 1: within almost arms reaches, Jerry Rowland seeded to my right, 5 00:00:22,280 --> 00:00:25,400 Speaker 1: and I'm seated right here in my access in the 6 00:00:25,480 --> 00:00:28,080 Speaker 1: center of my own being. And this is stuff you 7 00:00:28,080 --> 00:00:32,360 Speaker 1: should know. Yeah, in person a dish, first time since uh, 8 00:00:33,000 --> 00:00:38,599 Speaker 1: the the one time three D audio experience experiment. Well, 9 00:00:38,640 --> 00:00:41,440 Speaker 1: I forgot about that. I marked it out of my head. 10 00:00:41,520 --> 00:00:43,160 Speaker 1: That's the only time we've been in the same room 11 00:00:43,200 --> 00:00:46,960 Speaker 1: to record since COVID was that that those two episode? 12 00:00:46,960 --> 00:00:48,680 Speaker 1: I remember the second one. I remember the first one. 13 00:00:49,080 --> 00:00:52,960 Speaker 1: It was the Ivy League hobbit thing. Yeah, because Ivy 14 00:00:53,040 --> 00:00:56,720 Speaker 1: League and three D audio or just like it's such 15 00:00:56,800 --> 00:01:00,720 Speaker 1: low hanging fruit, you know. Yeah. But we're back because uh, 16 00:01:00,800 --> 00:01:02,640 Speaker 1: you know, I put it on my Instagram. The studio 17 00:01:02,720 --> 00:01:07,320 Speaker 1: is going away. We're moving house. And surprisingly to me, 18 00:01:07,360 --> 00:01:09,959 Speaker 1: at least, you said, hey, guys, I would really like 19 00:01:10,000 --> 00:01:12,600 Speaker 1: to record in there together one more time. Why is 20 00:01:12,600 --> 00:01:14,640 Speaker 1: that so surprised? I don't know. You don't seem overly 21 00:01:14,680 --> 00:01:17,479 Speaker 1: sentimental about stuff like this, that's not true. I weep 22 00:01:17,560 --> 00:01:22,360 Speaker 1: a lot, yeah, but not about studio rooms though. No, 23 00:01:22,720 --> 00:01:25,440 Speaker 1: I mean I'll miss this particular room. Okay, me too. 24 00:01:25,440 --> 00:01:27,319 Speaker 1: I mean this has been I mean, I think like 25 00:01:27,880 --> 00:01:30,240 Speaker 1: seven of the most solid years we've ever had been 26 00:01:30,440 --> 00:01:34,600 Speaker 1: right here. Pretty solid. Although the the corner office with 27 00:01:34,680 --> 00:01:38,000 Speaker 1: moving blankets his sound bafflers was a pretty solid couple 28 00:01:38,040 --> 00:01:40,800 Speaker 1: of years to the quaint early days. I drove by 29 00:01:40,840 --> 00:01:42,600 Speaker 1: that building the other day too, and for the first 30 00:01:42,640 --> 00:01:44,880 Speaker 1: time in forever, yeah, in Buckhead, and I was just like, 31 00:01:45,400 --> 00:01:47,720 Speaker 1: do you remember there was like, for some reason, every 32 00:01:47,760 --> 00:01:50,240 Speaker 1: time we recorded at like one thirty, when we had 33 00:01:50,280 --> 00:01:52,160 Speaker 1: just started to get going, a fire truck with go 34 00:01:52,360 --> 00:01:55,880 Speaker 1: right outside every day at the same time. It's like 35 00:01:55,920 --> 00:01:59,760 Speaker 1: they knew, oh the memories. So that's enough fun for now. 36 00:02:00,200 --> 00:02:02,600 Speaker 1: Because we're talking about interest rates, all right. I don't 37 00:02:02,600 --> 00:02:04,280 Speaker 1: know why I picked this. I mean, I do know why, 38 00:02:04,360 --> 00:02:06,400 Speaker 1: but I just I'm so not good at this stuff. 39 00:02:06,920 --> 00:02:10,520 Speaker 1: So I can imagine an ap economics like teacher picking 40 00:02:10,560 --> 00:02:13,000 Speaker 1: this for for their high school class. So I think 41 00:02:13,000 --> 00:02:15,400 Speaker 1: that's kind of like a public service you've done here. Well, 42 00:02:15,440 --> 00:02:17,480 Speaker 1: I picked it because you know, the FED just raised 43 00:02:17,520 --> 00:02:21,040 Speaker 1: the rate by it was half of a point, right, Yeah, 44 00:02:21,120 --> 00:02:24,520 Speaker 1: biggest hikes in nineteen uh no, two thou Yeah, So 45 00:02:24,560 --> 00:02:26,200 Speaker 1: I saw that biggest hike and I was like, oh 46 00:02:26,240 --> 00:02:29,400 Speaker 1: my gosh, what was it? It was a half a point, 47 00:02:29,440 --> 00:02:31,120 Speaker 1: And I was like, I don't understand this, so I 48 00:02:31,160 --> 00:02:33,760 Speaker 1: might as well learn enough to tell other people a 49 00:02:33,800 --> 00:02:36,520 Speaker 1: little bit about it. Do you understand now, Yeah, like 50 00:02:36,560 --> 00:02:39,080 Speaker 1: that half of a percent is actually a pretty big deal. 51 00:02:39,360 --> 00:02:41,360 Speaker 1: It is, and I understand now more than ever. There's 52 00:02:41,400 --> 00:02:44,160 Speaker 1: like nine people that just controlled the economy of the 53 00:02:44,240 --> 00:02:47,560 Speaker 1: United States, right exactly. Yeah, it's true. Yeah, that half 54 00:02:47,560 --> 00:02:49,799 Speaker 1: of a percentage point is you'll see by the time 55 00:02:49,800 --> 00:02:55,680 Speaker 1: we're done with this, everybody is basically the FED goingh yeah, 56 00:02:55,919 --> 00:02:58,959 Speaker 1: they're really kind of nervous right now. And what they're 57 00:02:59,000 --> 00:03:01,400 Speaker 1: going for by raised in the interest rate is to 58 00:03:01,560 --> 00:03:04,800 Speaker 1: cool off the economy. We have inflation rates that haven't 59 00:03:04,800 --> 00:03:09,480 Speaker 1: been since not a good time for inflation, um, And 60 00:03:09,520 --> 00:03:13,840 Speaker 1: I mean we're talking the Great Recession was in there too, right, Like, 61 00:03:14,240 --> 00:03:16,400 Speaker 1: this is a big deal, the inflation that we're seeing 62 00:03:16,480 --> 00:03:18,320 Speaker 1: right now. So the FED is saying, Okay, we have 63 00:03:18,320 --> 00:03:21,840 Speaker 1: an economy that is overheating, like you want some inflation 64 00:03:21,880 --> 00:03:24,639 Speaker 1: as we'll see. But this is way too much inflation. 65 00:03:24,919 --> 00:03:27,520 Speaker 1: The prices of like everything is going through the roof. 66 00:03:27,520 --> 00:03:30,639 Speaker 1: People are getting really mad. We better do something about it. 67 00:03:30,680 --> 00:03:33,400 Speaker 1: But what they're trying to do by raising the interest 68 00:03:33,520 --> 00:03:36,400 Speaker 1: rates is to create a soft landing so that prices 69 00:03:36,440 --> 00:03:39,920 Speaker 1: come down, but they don't affect productivity and employment. That's 70 00:03:39,960 --> 00:03:42,600 Speaker 1: the big thing. And Ben ber Nankee put it once 71 00:03:42,680 --> 00:03:44,880 Speaker 1: back when he was still just affect governor rather than 72 00:03:44,880 --> 00:03:47,800 Speaker 1: the chair. Um. He said basically that what they were 73 00:03:47,840 --> 00:03:54,360 Speaker 1: doing was like driving a car and paraphrasing here, well, um, yes, probably, 74 00:03:54,760 --> 00:03:57,320 Speaker 1: he said the FED. Basically, what the FED does is 75 00:03:57,320 --> 00:04:00,440 Speaker 1: is like driving a car with fogged up windshield, a 76 00:04:00,520 --> 00:04:05,240 Speaker 1: faulty spedometer, and a brake, pedal and accelerator that when 77 00:04:05,240 --> 00:04:08,280 Speaker 1: you press it, the car has a very significant delay 78 00:04:08,440 --> 00:04:10,880 Speaker 1: before it responds. Oh, I thought you were going to say, 79 00:04:10,920 --> 00:04:13,760 Speaker 1: a break in an accelerator that just switched positions without 80 00:04:13,800 --> 00:04:17,120 Speaker 1: letting you know, which is with gender's on fire and 81 00:04:17,160 --> 00:04:20,520 Speaker 1: there's monkeys everywhere and they're angry. Yeah. The delay, sure, 82 00:04:20,600 --> 00:04:23,679 Speaker 1: because none of these uh you know, none of these moves. 83 00:04:23,680 --> 00:04:26,360 Speaker 1: It's an immediate impact and it's sort of a fingers 84 00:04:26,360 --> 00:04:29,240 Speaker 1: crossed behind your back kind of move. Yeah, almost always. Yeah. 85 00:04:29,240 --> 00:04:31,520 Speaker 1: And so most people who are watching this are saying 86 00:04:31,520 --> 00:04:34,760 Speaker 1: the Fed waited too long because they kept the economy 87 00:04:34,839 --> 00:04:37,000 Speaker 1: juiced for years and years and years. It just kept 88 00:04:37,040 --> 00:04:39,880 Speaker 1: getting hotter and hotter, and everybody's very happy until prices 89 00:04:39,880 --> 00:04:42,200 Speaker 1: started going on, right, So they waited too long. So 90 00:04:42,400 --> 00:04:45,000 Speaker 1: most most I shouldn't say most. A lot of people 91 00:04:45,080 --> 00:04:47,719 Speaker 1: who know what they're talking about, say there's a recession 92 00:04:47,760 --> 00:04:51,040 Speaker 1: coming pretty soon. So battened down the hat key indicators, 93 00:04:51,040 --> 00:04:53,960 Speaker 1: as they say. Right, So, what does all this have 94 00:04:54,080 --> 00:04:57,440 Speaker 1: to do with interest rates? Chuck, let's wrap well, I 95 00:04:57,440 --> 00:04:59,640 Speaker 1: mean this is we'll get to the Fed, but this 96 00:04:59,680 --> 00:05:03,120 Speaker 1: is generally about interest rates. The good news is everything 97 00:05:03,120 --> 00:05:06,640 Speaker 1: else about interest rates is pretty basic. Uh. We are 98 00:05:06,720 --> 00:05:09,360 Speaker 1: a nation and and and and a lot of ways 99 00:05:09,360 --> 00:05:15,040 Speaker 1: a world that operates on loans and interest in barring money, 100 00:05:15,680 --> 00:05:17,800 Speaker 1: and then banks borrow money from each other, and then 101 00:05:18,240 --> 00:05:20,479 Speaker 1: the Fed lends money to banks, and it's just it's 102 00:05:20,520 --> 00:05:24,320 Speaker 1: a it's a weird thing. It's a weird world economy 103 00:05:24,440 --> 00:05:26,640 Speaker 1: that has been created over the past several hundred years. 104 00:05:26,640 --> 00:05:29,039 Speaker 1: In this country, there's a lot of shiny shoot suits. 105 00:05:29,400 --> 00:05:32,320 Speaker 1: People break your arms. Yeah, it's basically what it's all 106 00:05:32,320 --> 00:05:34,360 Speaker 1: based on, sure, But it's all based on the fact 107 00:05:34,400 --> 00:05:36,640 Speaker 1: that if you want to buy something as a person, 108 00:05:37,680 --> 00:05:41,080 Speaker 1: uh and you know we're focusing on the United States here, uh, 109 00:05:41,120 --> 00:05:43,280 Speaker 1: and you don't have the money, it's no big deal 110 00:05:43,320 --> 00:05:45,320 Speaker 1: because you can get credit cards. If you want to 111 00:05:45,640 --> 00:05:49,480 Speaker 1: pay large interest rates, you can get home loan or 112 00:05:49,520 --> 00:05:52,320 Speaker 1: a car loan, because not everyone can shell out, you know, 113 00:05:52,400 --> 00:05:54,720 Speaker 1: twenty two fifty grand for a car over my ch 114 00:05:54,720 --> 00:05:59,520 Speaker 1: house's costs now eight eight million dollars. And you know 115 00:05:59,520 --> 00:06:02,000 Speaker 1: there's risk get involved anytime you lend money and depending 116 00:06:02,240 --> 00:06:04,800 Speaker 1: all of it really comes down to the risk of 117 00:06:04,839 --> 00:06:07,920 Speaker 1: the loan as according to what the interest rates gonna 118 00:06:08,000 --> 00:06:09,960 Speaker 1: end up being. Right. So what we're talking about now 119 00:06:09,960 --> 00:06:12,120 Speaker 1: our interest rates on the micro level, like the you 120 00:06:12,240 --> 00:06:14,599 Speaker 1: and me level, Like you're saying, how buying car, buying 121 00:06:14,680 --> 00:06:17,520 Speaker 1: credit cards, all that stuff, and it's it is it's 122 00:06:17,560 --> 00:06:21,280 Speaker 1: really basic, like you were saying, where um with it? 123 00:06:21,400 --> 00:06:26,559 Speaker 1: With interest rates. If you go to get a loan, say, 124 00:06:26,760 --> 00:06:28,800 Speaker 1: they're gonna look at a few things like what are 125 00:06:28,800 --> 00:06:33,279 Speaker 1: you gonna buy? I'm gonna buy a really cool vintage 126 00:06:33,320 --> 00:06:36,760 Speaker 1: poison T shirt on eBay ok Okay, it's like fifteen 127 00:06:36,800 --> 00:06:41,200 Speaker 1: grand easily, I want to borrow some money to get 128 00:06:41,240 --> 00:06:43,960 Speaker 1: that T shirt, that's right. Um, So they're gonna look 129 00:06:43,960 --> 00:06:46,440 Speaker 1: at my whoever I borrow from is going to look 130 00:06:46,440 --> 00:06:50,960 Speaker 1: at my um my credit score. Um, especially if it's 131 00:06:50,960 --> 00:06:56,279 Speaker 1: an unsecured debt, right Yeah. Unsecure debt is basically any 132 00:06:56,320 --> 00:06:58,479 Speaker 1: kind of credit card debt because they can't come and 133 00:06:58,520 --> 00:07:00,880 Speaker 1: take away anything. Basically, they're not going to take my 134 00:07:00,880 --> 00:07:03,839 Speaker 1: poison shirt if I default on the loan. The way 135 00:07:03,839 --> 00:07:06,479 Speaker 1: that they get you is they affect your credit, but 136 00:07:06,600 --> 00:07:08,599 Speaker 1: I still get to keep the poison shirt. So who's 137 00:07:08,600 --> 00:07:12,080 Speaker 1: the sucker here, right? As opposed to a secured UH debt, 138 00:07:12,120 --> 00:07:14,000 Speaker 1: which is you've got like a home mortgage, because they 139 00:07:14,000 --> 00:07:16,600 Speaker 1: can come and take that right. So getting back to 140 00:07:16,720 --> 00:07:20,440 Speaker 1: interest rates, then that would mean that since the bank 141 00:07:20,560 --> 00:07:23,240 Speaker 1: that lent you the money to buy your home can 142 00:07:23,320 --> 00:07:27,920 Speaker 1: legally seize your home because it's a secured debt, they're 143 00:07:27,960 --> 00:07:29,640 Speaker 1: going to charge you less because at the end of 144 00:07:29,640 --> 00:07:32,080 Speaker 1: the day, if you default, they can take your house. 145 00:07:32,640 --> 00:07:34,720 Speaker 1: The credit card is going to charge you a higher 146 00:07:34,760 --> 00:07:37,560 Speaker 1: interest rate because at the end of the day, if 147 00:07:37,600 --> 00:07:40,640 Speaker 1: you default, they can't take that poison shirt. So they're 148 00:07:40,640 --> 00:07:42,800 Speaker 1: going to charge more. And the reason that there's a 149 00:07:42,840 --> 00:07:45,720 Speaker 1: difference in charging more or less is because the entire 150 00:07:45,880 --> 00:07:50,200 Speaker 1: point of interest is that's the price you're paying for 151 00:07:50,280 --> 00:07:53,360 Speaker 1: somebody to loan you money in exchange for them taking 152 00:07:53,360 --> 00:07:56,280 Speaker 1: a risk, because there's always a risk that you're going 153 00:07:56,360 --> 00:07:59,040 Speaker 1: to not pay it back, even if you have great credit. 154 00:07:59,400 --> 00:08:03,800 Speaker 1: Something could happen. Um, you could break bad or something 155 00:08:03,880 --> 00:08:06,240 Speaker 1: like that. Who knows, but there's always a risk. And 156 00:08:06,280 --> 00:08:09,360 Speaker 1: then that's what interest is. It's it's you're it's the 157 00:08:09,400 --> 00:08:11,640 Speaker 1: money they make for loaning you that money and taking 158 00:08:11,680 --> 00:08:14,160 Speaker 1: that risk. That's right. Uh, And it's a little it's 159 00:08:14,160 --> 00:08:16,640 Speaker 1: not counterintuitive, but it kind of works both ways because 160 00:08:16,680 --> 00:08:19,760 Speaker 1: if you had the collateral of like let's say a 161 00:08:19,800 --> 00:08:22,760 Speaker 1: home mortgage and they can take that house, that's gonna 162 00:08:22,760 --> 00:08:24,520 Speaker 1: be a much lower interest rate, like you said, than 163 00:08:24,560 --> 00:08:28,440 Speaker 1: the credit card, but it's also gonna be higher in 164 00:08:28,520 --> 00:08:32,240 Speaker 1: some ways because it's a long term loan. Uh. If 165 00:08:32,280 --> 00:08:34,440 Speaker 1: it's you know, it's kind of a negative outlook. But 166 00:08:34,960 --> 00:08:36,880 Speaker 1: I think that banks look at people and say, well, 167 00:08:37,000 --> 00:08:39,000 Speaker 1: if you have a thirty year home mortgage, like, I 168 00:08:39,000 --> 00:08:41,240 Speaker 1: don't know what you're gonna be doing in twenty seven years, 169 00:08:41,280 --> 00:08:44,080 Speaker 1: Like you may be broke, maybe destitute, you may be 170 00:08:44,120 --> 00:08:48,000 Speaker 1: in the hospital and have no money anymore, So that's 171 00:08:48,000 --> 00:08:51,200 Speaker 1: gonna be a little higher. Which is why if you can, 172 00:08:51,440 --> 00:08:54,600 Speaker 1: like people always I mean financial people, I'm not one 173 00:08:54,600 --> 00:08:56,880 Speaker 1: of those, but they always recommend you, like refire your 174 00:08:56,880 --> 00:08:59,240 Speaker 1: house and bring it down to a fifteen year loan 175 00:08:59,320 --> 00:09:03,080 Speaker 1: because it's risky and it'll be a little bit less 176 00:09:03,120 --> 00:09:05,800 Speaker 1: of an annual percentage rate. Right. And then one of 177 00:09:05,840 --> 00:09:07,840 Speaker 1: the other reasons if you've ever looked at a house 178 00:09:07,920 --> 00:09:12,079 Speaker 1: or gotten a a mortgage, um, there's a big difference 179 00:09:12,120 --> 00:09:14,560 Speaker 1: between the rate your charge for a fifteen year and 180 00:09:14,600 --> 00:09:17,800 Speaker 1: a thirty year not just because there's a longer chance 181 00:09:17,840 --> 00:09:20,400 Speaker 1: for you to default on the loan, but also because 182 00:09:20,400 --> 00:09:23,240 Speaker 1: over the course of thirty years, inflation is going to 183 00:09:23,280 --> 00:09:25,959 Speaker 1: actually eat into the amount of money you pay that 184 00:09:26,000 --> 00:09:29,800 Speaker 1: bank back because it's going to depress the value of 185 00:09:29,840 --> 00:09:32,640 Speaker 1: the dollar over time. Right, So when that bank is 186 00:09:32,679 --> 00:09:36,640 Speaker 1: getting your hundred what's left on your hundred grand years 187 00:09:36,679 --> 00:09:38,840 Speaker 1: from now, it's not gonna be the same as the 188 00:09:38,880 --> 00:09:41,480 Speaker 1: value of that dollar now. Right. So there's actually two 189 00:09:41,559 --> 00:09:44,320 Speaker 1: types of interest that you pay on say like a 190 00:09:44,360 --> 00:09:47,560 Speaker 1: thirty year mortgage, or even a fifteen year mortgage, and 191 00:09:47,600 --> 00:09:51,600 Speaker 1: that is the nominal rate, which is the rate you 192 00:09:51,640 --> 00:09:54,840 Speaker 1: agree to, say ten percent, which is astronomical. It don't 193 00:09:54,880 --> 00:09:57,800 Speaker 1: ever take a homeland out with a ten percent mortgage 194 00:09:57,880 --> 00:10:01,200 Speaker 1: interest on it, right, Okay, Um, that's just a that's 195 00:10:01,200 --> 00:10:06,240 Speaker 1: just a tip from me. Um. But over time, as 196 00:10:06,280 --> 00:10:10,440 Speaker 1: inflation grows, um, let's say over that that fifteen years, 197 00:10:10,800 --> 00:10:14,760 Speaker 1: inflation grows a total like four percent, you're actually paying 198 00:10:14,800 --> 00:10:17,360 Speaker 1: the bank bank back, or they're actually getting back the 199 00:10:17,480 --> 00:10:20,600 Speaker 1: value equal to about six percent of what they lent you. 200 00:10:20,720 --> 00:10:24,679 Speaker 1: And what's that called? That is the real interest rate? Right, 201 00:10:24,760 --> 00:10:31,160 Speaker 1: that's right, okay, I remember wake up everybody. By the way, 202 00:10:31,440 --> 00:10:33,679 Speaker 1: all right, and by the way, Jerry's eating over there, 203 00:10:33,720 --> 00:10:37,679 Speaker 1: and that's there's just nothing more normal and relaxing than 204 00:10:37,760 --> 00:10:40,360 Speaker 1: us sitting in a room and Jerry chomping down next 205 00:10:40,400 --> 00:10:42,640 Speaker 1: to us. I just want to acknowledge that it's kind 206 00:10:42,679 --> 00:10:45,160 Speaker 1: of nice. It is nice. She's not eating me, so 207 00:10:45,240 --> 00:10:47,360 Speaker 1: though this time it's the only thing missing from this. 208 00:10:47,480 --> 00:10:49,720 Speaker 1: You know, most people fall asleep to like white noise 209 00:10:49,800 --> 00:10:51,840 Speaker 1: or the sound the ocean. I have wanted just Jerry chewing. 210 00:10:53,120 --> 00:10:56,520 Speaker 1: Let's be right to bed. All right, So I guess 211 00:10:56,640 --> 00:11:01,200 Speaker 1: that's like just the basic over view of how regular 212 00:11:01,280 --> 00:11:04,200 Speaker 1: interest rates work. It's really easy. It's very basic. It's 213 00:11:04,240 --> 00:11:06,520 Speaker 1: the price you pay to borrow money rather than saving 214 00:11:06,559 --> 00:11:09,160 Speaker 1: up to spend. Yeah, but no one cares about that 215 00:11:09,200 --> 00:11:11,720 Speaker 1: stuff because you you know, you try and get your 216 00:11:11,720 --> 00:11:14,200 Speaker 1: credit card rates down, you try and have good credit, 217 00:11:14,480 --> 00:11:16,040 Speaker 1: and you buy a house, you try and get the 218 00:11:16,040 --> 00:11:18,120 Speaker 1: best rate you can, and then it's all kind of 219 00:11:18,120 --> 00:11:20,920 Speaker 1: said and done. But what everyone sits up and takes 220 00:11:20,920 --> 00:11:25,680 Speaker 1: attention is when the Federal Reserve. And by the way, 221 00:11:25,720 --> 00:11:27,920 Speaker 1: if you ever want to just send me into traffic, 222 00:11:28,000 --> 00:11:29,880 Speaker 1: we should just do a whole podcast on the FED. 223 00:11:30,080 --> 00:11:34,000 Speaker 1: I don't understand why they talk the way they do, 224 00:11:35,160 --> 00:11:39,160 Speaker 1: like they're purposefully obtuse. I think like it's probably hard, 225 00:11:39,600 --> 00:11:41,880 Speaker 1: like you can just read their game in the whole system, 226 00:11:41,920 --> 00:11:43,720 Speaker 1: so they just want everyone to be even nice and sleepy. 227 00:11:43,880 --> 00:11:47,480 Speaker 1: I guess, so when they're talking, it's just nuts. So 228 00:11:47,520 --> 00:11:50,400 Speaker 1: when the chairperson of the Federal Reserve sits up and says, 229 00:11:50,440 --> 00:11:55,000 Speaker 1: all right, we think we're gonna raise some interest rates. Uh. 230 00:11:55,040 --> 00:11:57,680 Speaker 1: And by the way, banks they try to know before 231 00:11:57,679 --> 00:12:00,760 Speaker 1: they even make that announcement because they're always watching the 232 00:12:00,840 --> 00:12:03,000 Speaker 1: chairperson of the Fed and like, what they have a 233 00:12:03,040 --> 00:12:07,559 Speaker 1: breakfast this morning, right, how are they feeling today? Um. 234 00:12:07,679 --> 00:12:10,280 Speaker 1: Then that's why the recent point five percent adjustment was 235 00:12:10,320 --> 00:12:12,640 Speaker 1: just such a big deal because it can have a 236 00:12:12,760 --> 00:12:16,920 Speaker 1: really immediate and long term effect, which is kind of 237 00:12:16,960 --> 00:12:19,640 Speaker 1: weird because immediately like stocks are going to do all 238 00:12:19,720 --> 00:12:22,360 Speaker 1: kinds of crazy things, and then it's got this long 239 00:12:22,480 --> 00:12:24,720 Speaker 1: term effect that they hope is going to work out, 240 00:12:25,160 --> 00:12:27,800 Speaker 1: but it doesn't always because it's not an exact science. Yeah, 241 00:12:27,880 --> 00:12:32,400 Speaker 1: really good example. That goes back to um bank mortgages. Right, 242 00:12:32,840 --> 00:12:35,400 Speaker 1: So banks, I'm sure they carry out their own research 243 00:12:35,440 --> 00:12:37,880 Speaker 1: as well to predict what's going to happen in the future, 244 00:12:37,960 --> 00:12:40,320 Speaker 1: because they want to set their mortgage rates, their thirty 245 00:12:40,360 --> 00:12:44,120 Speaker 1: year mortgage rates today with this close a forecast of 246 00:12:44,120 --> 00:12:47,600 Speaker 1: what's going to happen with inflation over the next thirty 247 00:12:47,679 --> 00:12:50,319 Speaker 1: years as they possibly can, because they wanted to squeeze 248 00:12:50,320 --> 00:12:53,320 Speaker 1: out every real penny that they can from you from 249 00:12:53,320 --> 00:12:55,800 Speaker 1: your loan. Right. That's like crystal ball stuff though you 250 00:12:55,840 --> 00:12:57,960 Speaker 1: know it is, but I mean it's I think they've 251 00:12:58,000 --> 00:13:00,120 Speaker 1: gotten kind of good at it, but it's still the 252 00:13:00,160 --> 00:13:02,720 Speaker 1: end of the day, just an educated guess one of 253 00:13:02,760 --> 00:13:04,800 Speaker 1: the things they do is watch what the FEDS doing. 254 00:13:04,880 --> 00:13:07,480 Speaker 1: Is the Fed raising interest rates? Are the raising interest rates? 255 00:13:07,760 --> 00:13:09,920 Speaker 1: Does that mean that they think inflation is going up? 256 00:13:09,920 --> 00:13:11,800 Speaker 1: And the inflation is going up, then we need to 257 00:13:11,840 --> 00:13:16,120 Speaker 1: adjust our mortgage loans. Right, that's pretty simple. But it 258 00:13:16,200 --> 00:13:20,040 Speaker 1: just keeps going from there. So if mortgage rates increase, 259 00:13:20,440 --> 00:13:25,720 Speaker 1: home buying slows, housing prices drop, that means new houses 260 00:13:25,880 --> 00:13:29,280 Speaker 1: are being built less frequently, which means there's fewer carpenters 261 00:13:29,320 --> 00:13:32,800 Speaker 1: being put to work. That means there's fewer lumber mills 262 00:13:33,000 --> 00:13:36,240 Speaker 1: creating lumber for those houses. So those people are out 263 00:13:36,280 --> 00:13:38,680 Speaker 1: of work. Those people are out of work, they're starting 264 00:13:38,679 --> 00:13:42,120 Speaker 1: to default on their um their rent or their mortgages, 265 00:13:42,640 --> 00:13:45,960 Speaker 1: and foreclosures start to go up, which further depresses the 266 00:13:45,960 --> 00:13:49,800 Speaker 1: housing value or the housing market because a flood of 267 00:13:50,000 --> 00:13:52,640 Speaker 1: houses start to come on the market because of foreclosures 268 00:13:52,679 --> 00:13:55,559 Speaker 1: because banks want to offload them. Just from the FED 269 00:13:56,760 --> 00:14:00,920 Speaker 1: saying we might increase by a quarter of a percent 270 00:14:01,400 --> 00:14:04,160 Speaker 1: our interest rate. Yeah, yeah, that's the kind that's what's 271 00:14:04,160 --> 00:14:07,720 Speaker 1: at stake when they're speaking out in public or even 272 00:14:07,800 --> 00:14:11,839 Speaker 1: like making moves, yeah, like with without speaking at all. Yeah, 273 00:14:11,920 --> 00:14:15,640 Speaker 1: it's it's pretty scary and precarious. Um, the FED itself, 274 00:14:15,720 --> 00:14:17,600 Speaker 1: and like I said, maybe we'll do if I guess 275 00:14:17,640 --> 00:14:19,840 Speaker 1: we have to at some point on the FED. But 276 00:14:19,960 --> 00:14:23,040 Speaker 1: just as a broad overview of the Federal Reserve is 277 00:14:23,120 --> 00:14:26,640 Speaker 1: the central bank of the US. There twelve regional Federal 278 00:14:26,720 --> 00:14:29,800 Speaker 1: Reserve banks and a seven member board I talked about. 279 00:14:29,840 --> 00:14:32,240 Speaker 1: I don't know if I said seven people, but a 280 00:14:32,320 --> 00:14:35,360 Speaker 1: seven member board of governors in d c UH. And 281 00:14:35,400 --> 00:14:38,560 Speaker 1: it was created in nineteen thirteen too, you know, ideally 282 00:14:38,640 --> 00:14:41,920 Speaker 1: stabilize and secure our economy because at the time it 283 00:14:41,960 --> 00:14:44,640 Speaker 1: was sort of the wild West when it comes to banking. Yeah, 284 00:14:44,640 --> 00:14:46,680 Speaker 1: there are a lot of bank panics actually, where people 285 00:14:46,760 --> 00:14:48,680 Speaker 1: would no good make a run on a bank and 286 00:14:48,720 --> 00:14:50,400 Speaker 1: the bank would be like, we don't have any more money, 287 00:14:50,440 --> 00:14:52,480 Speaker 1: and they would go under and like people would lose 288 00:14:52,520 --> 00:14:54,920 Speaker 1: their entire savings. Yeah, I mean, it was a pretty 289 00:14:54,920 --> 00:14:57,560 Speaker 1: brilliant creation. Uh. And one of the things the FED 290 00:14:57,640 --> 00:14:59,200 Speaker 1: does a lot, But one of the things the Federal 291 00:14:59,240 --> 00:15:02,920 Speaker 1: Reserve does is it has a lot of cash and 292 00:15:02,960 --> 00:15:05,640 Speaker 1: it helps supply the banks that you and I bank 293 00:15:05,680 --> 00:15:10,280 Speaker 1: at with cash reserves. And um, maybe let's take a break. 294 00:15:10,280 --> 00:15:13,440 Speaker 1: That's a good Cliffhanger, and we'll talk about the fact 295 00:15:13,520 --> 00:15:15,680 Speaker 1: that banks, by law I have to keep certain amounts 296 00:15:15,680 --> 00:15:18,240 Speaker 1: of money, and it gets even more boring. I can't 297 00:15:18,280 --> 00:15:50,040 Speaker 1: believe that Cliffhanger. Okay, Chuck. Before we get into um 298 00:15:50,160 --> 00:15:55,040 Speaker 1: the reserve requirements of banks, I have a pretty neat 299 00:15:55,120 --> 00:15:58,560 Speaker 1: little story. Actually, we're talking about banking panics, and there 300 00:15:58,680 --> 00:16:02,240 Speaker 1: was one in two or at least there was one 301 00:16:02,240 --> 00:16:05,080 Speaker 1: bank that went under UM and they had a branch 302 00:16:05,080 --> 00:16:09,080 Speaker 1: in Sacramento that a guy named Louis Remy I'm gonna 303 00:16:09,120 --> 00:16:12,640 Speaker 1: say UM went to go get his twelve thousand dollars 304 00:16:12,640 --> 00:16:15,160 Speaker 1: that he'd saved up. It's about like three hundred and 305 00:16:15,240 --> 00:16:17,800 Speaker 1: fifty thousand dollars in today's money. It was like his 306 00:16:17,960 --> 00:16:20,480 Speaker 1: nest dagg right. He went to go get it out 307 00:16:20,520 --> 00:16:22,240 Speaker 1: and was told that the bank had failed and they 308 00:16:22,240 --> 00:16:25,120 Speaker 1: didn't have his money. So you know what Louis or 309 00:16:25,160 --> 00:16:28,520 Speaker 1: Louis Remy did. He got on a horse and he 310 00:16:28,640 --> 00:16:34,200 Speaker 1: rode from Sacramento to Portland, Oregon, six hundred and sixty 311 00:16:34,200 --> 00:16:38,880 Speaker 1: five miles in six days. He rode for a hundred 312 00:16:38,960 --> 00:16:42,760 Speaker 1: and forty three hours. Ten of those was to stop 313 00:16:42,800 --> 00:16:44,760 Speaker 1: to sleep. I thought I was going to say, to 314 00:16:44,800 --> 00:16:46,640 Speaker 1: get a new horse, because he had to do that. 315 00:16:46,760 --> 00:16:50,040 Speaker 1: He did that like in an instant, right, So for 316 00:16:50,040 --> 00:16:52,400 Speaker 1: for six days he slept ten hours to ride to 317 00:16:52,440 --> 00:16:55,960 Speaker 1: Portland's got there before the steamership that was carrying news 318 00:16:56,000 --> 00:16:59,840 Speaker 1: of the bank collapsed Sacramento. So he was racing the steamer, 319 00:17:00,160 --> 00:17:02,920 Speaker 1: got there an hour or two before the steamer got 320 00:17:02,920 --> 00:17:05,480 Speaker 1: his twelve tho dollars out of the Portlands brand to 321 00:17:05,520 --> 00:17:09,040 Speaker 1: the bank, and like within an hour or two of 322 00:17:09,119 --> 00:17:11,840 Speaker 1: that bank collapsing, finding out that there was no more 323 00:17:11,920 --> 00:17:16,200 Speaker 1: bank anymore. Isn't that amazing? I'm glad his flex capacitor 324 00:17:16,240 --> 00:17:19,520 Speaker 1: was working. Basically, that's basically what he did. But the 325 00:17:19,560 --> 00:17:21,879 Speaker 1: horse version of that man, yeah, he said, oh I 326 00:17:21,880 --> 00:17:24,120 Speaker 1: should give myself an hour. That should be plenty of time. 327 00:17:25,080 --> 00:17:27,280 Speaker 1: I never understand that in time travel movies. I don't either. 328 00:17:27,359 --> 00:17:29,640 Speaker 1: It's like, go back the week before time. Just take 329 00:17:29,680 --> 00:17:32,000 Speaker 1: it easy, maybe get like a snack. You have time, 330 00:17:32,440 --> 00:17:36,960 Speaker 1: all right, So we promise the scintillating details of the 331 00:17:37,000 --> 00:17:39,320 Speaker 1: fact that banks have to keep a certain amount of 332 00:17:39,359 --> 00:17:42,760 Speaker 1: money in their reserves. And that is because you know, 333 00:17:43,320 --> 00:17:45,679 Speaker 1: if every I mean it's not the eighteen hundreds, not 334 00:17:45,720 --> 00:17:48,120 Speaker 1: everyone's gonna say I gotta go to that Chase bank 335 00:17:48,160 --> 00:17:50,440 Speaker 1: and withdraw every penny all at the same time. But 336 00:17:50,480 --> 00:17:53,080 Speaker 1: they got to be protected against that. Oh, it could happen, though, 337 00:17:53,240 --> 00:17:56,959 Speaker 1: there's still sure. But the problem is once a panic starts, 338 00:17:57,480 --> 00:18:00,840 Speaker 1: it spreads like wildfire, because that means, well, if these 339 00:18:00,840 --> 00:18:03,480 Speaker 1: people are panninging, even though I'm not panninging, I better 340 00:18:03,520 --> 00:18:05,360 Speaker 1: go to the bank anyway to get my money out 341 00:18:05,359 --> 00:18:08,560 Speaker 1: before it collapses, before more of these idiots panic and 342 00:18:08,600 --> 00:18:11,719 Speaker 1: take their money out. Right, So, whether you're panicked or not, 343 00:18:11,840 --> 00:18:14,359 Speaker 1: it actually makes sense if there's a panic and a 344 00:18:14,440 --> 00:18:16,800 Speaker 1: run going on in your bank to go withdraw, and 345 00:18:16,840 --> 00:18:19,600 Speaker 1: it's just this chain reaction that starts. So the FED 346 00:18:19,920 --> 00:18:24,560 Speaker 1: protects against that by by requiring that these banks have 347 00:18:24,640 --> 00:18:27,919 Speaker 1: these reserves. Right, yes, so it's known as the reserve requirement. 348 00:18:27,960 --> 00:18:31,119 Speaker 1: It's based on a percentage of all the deposits in 349 00:18:31,119 --> 00:18:36,240 Speaker 1: that bank. It's very simple calculation. And then they they 350 00:18:36,320 --> 00:18:40,040 Speaker 1: these banks have to have non intersparing accounts at the 351 00:18:40,040 --> 00:18:45,240 Speaker 1: Federal Reserve to make sure the Federal Reserve can cover everything, right, 352 00:18:45,280 --> 00:18:47,320 Speaker 1: to make sure that it's like, okay, you have to 353 00:18:47,320 --> 00:18:49,920 Speaker 1: have this much, we're going to hang onto it. For you. 354 00:18:50,359 --> 00:18:53,080 Speaker 1: That's right. So they're they're taking this average every day, 355 00:18:53,119 --> 00:18:57,000 Speaker 1: but it's over it's an average over two weeks basically 356 00:18:57,080 --> 00:18:59,960 Speaker 1: to determine whether or not it's meeting that reserve requirement. 357 00:19:00,200 --> 00:19:03,120 Speaker 1: And here's the thing that I don't know. I guess 358 00:19:03,119 --> 00:19:06,240 Speaker 1: it's sort of surprised me. Is banks, depending on what's 359 00:19:06,240 --> 00:19:08,640 Speaker 1: going on on a day to day basis, are borrowing 360 00:19:08,640 --> 00:19:11,680 Speaker 1: and lending money to each other well to cover themselves. Yes, 361 00:19:11,880 --> 00:19:14,800 Speaker 1: so that sounds frightening, but it makes sense. But so 362 00:19:14,840 --> 00:19:18,639 Speaker 1: they've got like a pile of money, and whatever money 363 00:19:18,680 --> 00:19:21,080 Speaker 1: they have, they can make more money if they lend 364 00:19:21,119 --> 00:19:23,520 Speaker 1: that money out, if they put it to work, right, Yeah, 365 00:19:23,560 --> 00:19:24,879 Speaker 1: I mean that's what they want to do, is just 366 00:19:24,920 --> 00:19:27,520 Speaker 1: to get more interest. So if on one day they're like, oh, 367 00:19:27,680 --> 00:19:30,920 Speaker 1: we've len out more than we we have in reserve, 368 00:19:31,800 --> 00:19:34,959 Speaker 1: we go to another bank that has an excess and 369 00:19:35,040 --> 00:19:37,879 Speaker 1: borrow it from them and then we put it in 370 00:19:37,880 --> 00:19:40,760 Speaker 1: our FED account and everything's fine. We're within the legal 371 00:19:40,800 --> 00:19:44,480 Speaker 1: limits for those reserve requirements. Right. But if they run 372 00:19:44,520 --> 00:19:47,520 Speaker 1: out of you know, banks to trade with basically at 373 00:19:47,520 --> 00:19:49,159 Speaker 1: the end of the day, then they can go to 374 00:19:49,200 --> 00:19:52,040 Speaker 1: the FED and say big Mama, we need a little 375 00:19:52,040 --> 00:19:54,359 Speaker 1: money from you, actually, right, And the FED doesn't like that, 376 00:19:54,440 --> 00:19:57,919 Speaker 1: so they actually charge banks more for the UM for 377 00:19:58,200 --> 00:20:01,800 Speaker 1: to borrow money directly from the BED for overnight requirements. 378 00:20:01,880 --> 00:20:04,840 Speaker 1: That's right, but it's ironically called the discount rate even 379 00:20:04,920 --> 00:20:06,960 Speaker 1: though it's the larger of the two rates. The other rate, 380 00:20:07,000 --> 00:20:11,520 Speaker 1: where a bank borrows from another bank overnight to satisfy 381 00:20:11,600 --> 00:20:18,280 Speaker 1: the FED reserve requirements, that's called the UM Federal Funds rate. Right, 382 00:20:18,480 --> 00:20:22,359 Speaker 1: I answered my own right, I thought you're waiting on me. Uh. 383 00:20:22,440 --> 00:20:26,520 Speaker 1: And within that discount rate, there are a few different tiers, uh, 384 00:20:26,840 --> 00:20:29,400 Speaker 1: kind of just like you would scale or a tier 385 00:20:29,440 --> 00:20:32,119 Speaker 1: any loan. You've got your primary rate, which is the 386 00:20:32,119 --> 00:20:34,960 Speaker 1: lowest one, and that's you know, if you're a great uh, 387 00:20:35,000 --> 00:20:36,840 Speaker 1: if you're a great bank and good standing, you're gonna 388 00:20:36,880 --> 00:20:40,280 Speaker 1: get that rate. You've got the secondary rate. Uh. And 389 00:20:40,280 --> 00:20:42,359 Speaker 1: that's if I think this is by the way, is 390 00:20:42,440 --> 00:20:45,600 Speaker 1: Dave Ruse but from house works dot com. Uh, And 391 00:20:45,720 --> 00:20:51,080 Speaker 1: Dave said, slightly less sound institutions Galloping Gulch State Bank. Yeah. Probably. 392 00:20:51,119 --> 00:20:54,120 Speaker 1: And then you've got your seasonal rate. And these are 393 00:20:54,240 --> 00:20:56,760 Speaker 1: very small banks with that are based sort of around 394 00:20:56,880 --> 00:21:00,800 Speaker 1: seasonal economies. Like tourism or agricultural something like that. Yeah, 395 00:21:00,840 --> 00:21:04,240 Speaker 1: because like and when when it comes time to bring 396 00:21:04,280 --> 00:21:07,000 Speaker 1: in the crops for harvest, all the farmers come and say, 397 00:21:07,000 --> 00:21:08,720 Speaker 1: I need some money to get this stuff to market. 398 00:21:08,760 --> 00:21:11,800 Speaker 1: I need loans, and those banks get strained at those times. Yeah. 399 00:21:11,920 --> 00:21:15,120 Speaker 1: Or there's lots of great I feel old timey heist 400 00:21:15,240 --> 00:21:20,520 Speaker 1: movies where uh, someone will you know, like during crop season, 401 00:21:20,600 --> 00:21:22,600 Speaker 1: they'll know a bank will have just be flooded with 402 00:21:22,600 --> 00:21:25,680 Speaker 1: cash on a certain afternoon. Yeah, there's a movie you're 403 00:21:25,720 --> 00:21:29,040 Speaker 1: talking about, Raising Arizona that was definitely the case. Okay, 404 00:21:29,160 --> 00:21:31,800 Speaker 1: was that it? But Wisdom, it's been in other movies. 405 00:21:31,840 --> 00:21:35,399 Speaker 1: To Familio Estevez, is that a bank rubber? He was 406 00:21:35,440 --> 00:21:37,480 Speaker 1: like a Robin Hood where he I think he robbed 407 00:21:37,480 --> 00:21:39,800 Speaker 1: banks to get rid of the deeds so that the 408 00:21:39,840 --> 00:21:43,720 Speaker 1: farmers could couldn't have their farms foreclosed. I never saw that. 409 00:21:43,880 --> 00:21:46,360 Speaker 1: I know the movie you're talking about that, I saw it, Wisdom, 410 00:21:46,800 --> 00:21:50,040 Speaker 1: I saw it. Hey, while we're talking about movies, I've 411 00:21:50,080 --> 00:21:51,919 Speaker 1: been meaning to give a shout out to so our 412 00:21:51,960 --> 00:21:55,960 Speaker 1: friend Toby his production company made a movie called The 413 00:21:55,960 --> 00:21:58,960 Speaker 1: Green Night that slipped under the radar, not for me, 414 00:21:59,000 --> 00:22:01,560 Speaker 1: buddy that's on the theater. Wasn't that an amazing movie? 415 00:22:01,760 --> 00:22:05,399 Speaker 1: It is and one of the most like, uh, just 416 00:22:05,440 --> 00:22:07,040 Speaker 1: sort of like in a in a day in time 417 00:22:07,040 --> 00:22:11,920 Speaker 1: where everything is a Marvel movie or something, to to 418 00:22:12,000 --> 00:22:15,320 Speaker 1: have something so original based on like an ancient tale. 419 00:22:16,000 --> 00:22:18,399 Speaker 1: It was. It was great. It was so David Lowry 420 00:22:18,440 --> 00:22:21,720 Speaker 1: is the director, and he's just a straight up a tier. Yeah, 421 00:22:21,880 --> 00:22:23,960 Speaker 1: he's just making the movies that he wants to make. 422 00:22:24,440 --> 00:22:27,600 Speaker 1: And their production companies called Sailor Bear. I think I'm 423 00:22:27,640 --> 00:22:30,800 Speaker 1: so mad that that got snubbed at the Oscar. It's crazy. 424 00:22:31,000 --> 00:22:34,280 Speaker 1: It's like cinematography and set design and costumes like it 425 00:22:34,480 --> 00:22:37,720 Speaker 1: got nothing. It's crazy. It's wonderful. Yeah, and I think 426 00:22:38,520 --> 00:22:44,280 Speaker 1: picked it up, which means their streak of like amazing movies, yes, flawless. 427 00:22:44,320 --> 00:22:47,160 Speaker 1: It's a flawless streak they have. They haven't stumbled once 428 00:22:47,200 --> 00:22:52,280 Speaker 1: in the entire the entire history of Come at me. 429 00:22:52,280 --> 00:22:55,280 Speaker 1: If you've got a bad movie, it's not you know 430 00:22:55,280 --> 00:22:59,720 Speaker 1: what I hear? Crickets? Is there a movie called Crickets? 431 00:23:00,880 --> 00:23:05,360 Speaker 1: Maybe there's a movie out there called egg Egg from 432 00:23:05,400 --> 00:23:08,320 Speaker 1: the sixties. Really yeah, I haven't seen it though, I 433 00:23:08,440 --> 00:23:10,680 Speaker 1: just read about in Uncle John's Bathroom. Reader, I thought 434 00:23:10,680 --> 00:23:14,240 Speaker 1: you were talking about the movie head the Monkeys, Monkeys 435 00:23:14,320 --> 00:23:17,640 Speaker 1: right where they they tried to do the whole smile thing. 436 00:23:18,400 --> 00:23:20,520 Speaker 1: Oh really, I think so they were there was kind 437 00:23:20,520 --> 00:23:24,840 Speaker 1: of their answer to the beach Boys. Interesting. Alright, Uh, 438 00:23:24,960 --> 00:23:29,280 Speaker 1: can we just keep talking about that stuff? All? Right? 439 00:23:29,359 --> 00:23:31,240 Speaker 1: Here we go, Let's get back on this. The Fed 440 00:23:31,440 --> 00:23:34,280 Speaker 1: funds rate. Is that what we're talking about. Yeah, we're 441 00:23:34,280 --> 00:23:36,960 Speaker 1: talking about that's the rate that banks charge one another 442 00:23:37,000 --> 00:23:39,919 Speaker 1: to borrow overnight to satisfy the reserve. Right, And this 443 00:23:40,000 --> 00:23:42,880 Speaker 1: is the one that is just very simple supply and demand. 444 00:23:43,520 --> 00:23:47,399 Speaker 1: If there are uh, there's a lot of cash and 445 00:23:47,440 --> 00:23:49,480 Speaker 1: a lot of banks, then the rate is going to 446 00:23:49,520 --> 00:23:52,200 Speaker 1: be lower. If there's demand for more money, then it's 447 00:23:52,200 --> 00:23:54,760 Speaker 1: going to be higher. The Fed controls all of this 448 00:23:55,520 --> 00:23:58,960 Speaker 1: in a roundabout way. Yeah, I mean they kind of 449 00:23:59,000 --> 00:24:01,399 Speaker 1: control all of it in the roundabout way. And like 450 00:24:01,480 --> 00:24:04,840 Speaker 1: also the economy like a Rube Goldberg mouse trap kind 451 00:24:04,840 --> 00:24:06,639 Speaker 1: of way. Like it'd be so much easier if they 452 00:24:06,640 --> 00:24:08,959 Speaker 1: were like, this is what you guys can charge one 453 00:24:09,000 --> 00:24:11,880 Speaker 1: another as an interest rate. Yeah, but they don't do that. 454 00:24:12,000 --> 00:24:14,359 Speaker 1: They let the market decide. They set a target and 455 00:24:14,359 --> 00:24:17,399 Speaker 1: then let the market work and then they manipulate the market. 456 00:24:17,920 --> 00:24:20,239 Speaker 1: That's right. So if the FED wants to lower that 457 00:24:20,280 --> 00:24:22,880 Speaker 1: funds rate, it's going to buy securities from those banks. 458 00:24:23,320 --> 00:24:25,280 Speaker 1: There's gonna be a more cash on hand all of 459 00:24:25,320 --> 00:24:27,840 Speaker 1: a sudden. If they want to raise the funds rate, 460 00:24:28,119 --> 00:24:31,760 Speaker 1: they're gonna sell government securities, which are I mean, anytime 461 00:24:31,800 --> 00:24:34,080 Speaker 1: you start talking debt instruments, I just go a little 462 00:24:34,280 --> 00:24:38,480 Speaker 1: crazy with excitement. But government securities are just debt instruments. 463 00:24:38,480 --> 00:24:42,200 Speaker 1: They're used to fund government operations. Uh, it's basically so 464 00:24:42,320 --> 00:24:45,840 Speaker 1: like the way I understood it was if Uh, like 465 00:24:45,880 --> 00:24:49,000 Speaker 1: a lot of it. It's military spending and operations, and 466 00:24:49,520 --> 00:24:51,720 Speaker 1: it just keeps them from having to like raise and 467 00:24:51,760 --> 00:24:53,679 Speaker 1: lower taxes a lot because they want to keep taxes 468 00:24:53,760 --> 00:24:56,239 Speaker 1: kind of stable. Right. So yeah, So with all that 469 00:24:56,320 --> 00:24:59,480 Speaker 1: deficit spending, what they're doing is if if if the 470 00:24:59,560 --> 00:25:02,840 Speaker 1: government could operate just on the taxes tax revenue it 471 00:25:02,840 --> 00:25:05,679 Speaker 1: brings in, it would be it would be neutral, It 472 00:25:05,680 --> 00:25:07,600 Speaker 1: wouldn't be operating at a depth that the wouldn't be 473 00:25:07,640 --> 00:25:10,760 Speaker 1: any profit would be great. But it spends more money 474 00:25:10,760 --> 00:25:12,880 Speaker 1: than it takes in, so it has to issue that debt, 475 00:25:12,880 --> 00:25:15,680 Speaker 1: which is basically loans in the form of treasury bills. 476 00:25:15,960 --> 00:25:18,600 Speaker 1: And that's what the FED is doing when they're out 477 00:25:18,600 --> 00:25:23,840 Speaker 1: there buying or selling treasury bills, these debt securities. They're 478 00:25:24,040 --> 00:25:27,440 Speaker 1: they're taking um debt in or out of the market. 479 00:25:27,480 --> 00:25:30,359 Speaker 1: They're adding cash into or out of the market. And 480 00:25:30,400 --> 00:25:33,879 Speaker 1: it's not like banks who trade with it's just a 481 00:25:34,000 --> 00:25:36,920 Speaker 1: very select elite group of of what it's called primary 482 00:25:36,960 --> 00:25:41,720 Speaker 1: dealers who buy and sell um these treasury bills with 483 00:25:41,800 --> 00:25:44,080 Speaker 1: the Fed. They don't have a choice in this. If 484 00:25:44,119 --> 00:25:46,000 Speaker 1: you want to be a primary dealer, you have to 485 00:25:46,080 --> 00:25:48,359 Speaker 1: buy or sell depending on what the Fed wants to 486 00:25:48,400 --> 00:25:51,840 Speaker 1: do at any given time. Right, And so by doing that, 487 00:25:52,040 --> 00:25:54,080 Speaker 1: they say, all right, we want to buy a bunch 488 00:25:54,119 --> 00:25:56,800 Speaker 1: of treasury bills because we want to inject cash into 489 00:25:56,800 --> 00:26:01,920 Speaker 1: the market. UM. Here like sell those to us. Here's 490 00:26:01,960 --> 00:26:04,240 Speaker 1: the cash. And by the way, we're not actually giving 491 00:26:04,240 --> 00:26:06,520 Speaker 1: you this cash to go do anything with. This cash 492 00:26:06,600 --> 00:26:11,959 Speaker 1: goes into your FED Federal Reserve account. Remember, and this 493 00:26:12,040 --> 00:26:15,359 Speaker 1: is really important, Chuck, that account is non interest sparing. 494 00:26:15,480 --> 00:26:19,160 Speaker 1: It makes zero sense in both sense of the word 495 00:26:19,760 --> 00:26:22,879 Speaker 1: to um leave money in there when you, as a 496 00:26:22,920 --> 00:26:25,040 Speaker 1: bank could make some money off of it loaning it 497 00:26:25,080 --> 00:26:28,160 Speaker 1: to other banks. So the more money that the FED 498 00:26:28,280 --> 00:26:31,840 Speaker 1: is put into those accounts, the more money there is 499 00:26:31,880 --> 00:26:35,240 Speaker 1: to loan, meaning that interest rate drops. And this is 500 00:26:35,280 --> 00:26:38,560 Speaker 1: also arcane. And again this is like a dozen people 501 00:26:38,640 --> 00:26:40,960 Speaker 1: who deal with this on a day to day basis, 502 00:26:41,760 --> 00:26:45,200 Speaker 1: But it has a ripple effect in that, um, when 503 00:26:45,320 --> 00:26:50,080 Speaker 1: you when you lower the federal funds rate, those banks 504 00:26:50,119 --> 00:26:53,359 Speaker 1: in turn end up lowering their rates to people like 505 00:26:53,400 --> 00:26:57,160 Speaker 1: you and me. It has a cascading effect throughout the economy. Yeah, 506 00:26:57,200 --> 00:26:59,960 Speaker 1: Like I think I used to look at the Federal 507 00:27:00,040 --> 00:27:02,399 Speaker 1: eight and when they would move that and think that's 508 00:27:02,480 --> 00:27:06,879 Speaker 1: the home mortgage loan rate. Essentially it translates into that. 509 00:27:07,000 --> 00:27:08,840 Speaker 1: It does in a certain way for sure, but I 510 00:27:08,840 --> 00:27:13,040 Speaker 1: thought the Fed sort of set that until last week. 511 00:27:13,359 --> 00:27:18,040 Speaker 1: But the same but it's just you know, it's it's 512 00:27:18,080 --> 00:27:21,479 Speaker 1: passed along on you know, like you said, both ways, 513 00:27:21,520 --> 00:27:24,600 Speaker 1: either in better interest rates or worse interest rates for 514 00:27:24,720 --> 00:27:28,600 Speaker 1: everything across the board for regular smells like us. Uh, 515 00:27:28,640 --> 00:27:31,000 Speaker 1: there's also I mean, you can also buy you know, 516 00:27:31,119 --> 00:27:33,280 Speaker 1: we'll talk about inflation in the stock market, which is 517 00:27:33,280 --> 00:27:36,359 Speaker 1: where I get really confused. But um, remember how I 518 00:27:36,440 --> 00:27:39,359 Speaker 1: was talking about, like the interest rates have to do 519 00:27:39,440 --> 00:27:42,440 Speaker 1: with nothing but risk. Basically, if you want to buy 520 00:27:42,680 --> 00:27:44,520 Speaker 1: if if you want to get out of the stock 521 00:27:44,520 --> 00:27:46,159 Speaker 1: market and just say I'm only going to invest in 522 00:27:46,200 --> 00:27:50,639 Speaker 1: like bonds and things like that in securities, then uh, 523 00:27:50,680 --> 00:27:52,640 Speaker 1: you're not gonna make much money. The return on those 524 00:27:52,680 --> 00:27:55,680 Speaker 1: is very very low because their government backed, which means 525 00:27:55,720 --> 00:27:58,240 Speaker 1: the risk is very very low. People play the stock 526 00:27:58,280 --> 00:28:03,679 Speaker 1: market because ideally you can get it like eight uh 527 00:28:04,000 --> 00:28:06,880 Speaker 1: more money every year that you're doing it, whereas you're 528 00:28:06,880 --> 00:28:11,560 Speaker 1: making like half of a percent. And that's the same way. 529 00:28:11,600 --> 00:28:14,800 Speaker 1: Like you know, you you you make interest when you 530 00:28:14,840 --> 00:28:16,879 Speaker 1: have money in the bank because the bank wants to 531 00:28:16,960 --> 00:28:19,240 Speaker 1: use your money, so they're kind of taking a loan 532 00:28:19,280 --> 00:28:22,040 Speaker 1: from you every day. You just don't realize it, but 533 00:28:22,119 --> 00:28:23,920 Speaker 1: you get just a tiny less This why it doesn't 534 00:28:23,920 --> 00:28:25,520 Speaker 1: payage to keep a ton of money in the bank, 535 00:28:25,800 --> 00:28:28,320 Speaker 1: because you're making a tiny amount there too. Yeah, and 536 00:28:28,400 --> 00:28:32,159 Speaker 1: so the federal funds rate UM has an effect on 537 00:28:32,240 --> 00:28:34,719 Speaker 1: that as well. Right in the real world with the 538 00:28:34,760 --> 00:28:38,640 Speaker 1: stock market. So if the federal if the Fed takes 539 00:28:38,640 --> 00:28:40,640 Speaker 1: a bunch of money out of the out of the 540 00:28:40,680 --> 00:28:46,040 Speaker 1: market um and floods the market with with like um 541 00:28:46,160 --> 00:28:50,560 Speaker 1: treasury bills, right those treasury bills are easy peasy to 542 00:28:50,640 --> 00:28:54,840 Speaker 1: come by, which means that they're worth less, which means 543 00:28:54,840 --> 00:28:57,800 Speaker 1: that people are going to get less money from investing 544 00:28:57,840 --> 00:28:59,720 Speaker 1: in them, which means they're going to turn to the 545 00:28:59,720 --> 00:29:03,480 Speaker 1: style market because you're gonna make more money, right even 546 00:29:03,480 --> 00:29:07,360 Speaker 1: though it's riskier. That juices the stock market when interest 547 00:29:07,440 --> 00:29:10,920 Speaker 1: rates are low. When interest rates are high, meaning the 548 00:29:10,960 --> 00:29:14,760 Speaker 1: Fed has soaked up a bunch of money, um, and 549 00:29:14,960 --> 00:29:20,000 Speaker 1: they have sold a bunch of those those like treasury bills. Um. 550 00:29:20,040 --> 00:29:24,120 Speaker 1: That means, yeah, I think I'm right, it's easy to get. 551 00:29:24,200 --> 00:29:27,640 Speaker 1: That means that the interest rate has gone up, which 552 00:29:27,680 --> 00:29:30,520 Speaker 1: means that you can get more money from those treasury bills, 553 00:29:30,560 --> 00:29:34,120 Speaker 1: which makes the stock market less attractive to people who 554 00:29:34,160 --> 00:29:38,280 Speaker 1: are investing in it, which usually signals a cooler economy. 555 00:29:38,320 --> 00:29:41,840 Speaker 1: That's right. And I guess the final effect here before 556 00:29:41,920 --> 00:29:46,600 Speaker 1: we break and then talk about inflation, which is so 557 00:29:46,600 --> 00:29:50,240 Speaker 1: so fun, is if the FED lowers the funds rate, 558 00:29:50,280 --> 00:29:53,080 Speaker 1: it's going to decrease the value of the dollar on 559 00:29:53,320 --> 00:29:56,040 Speaker 1: the exchange market, on the foreign exchange market. And that 560 00:29:56,840 --> 00:30:01,200 Speaker 1: is um, it's a little counterintuitive, but um, a little 561 00:30:01,240 --> 00:30:04,040 Speaker 1: bit of a like a long term drop like the 562 00:30:04,400 --> 00:30:07,640 Speaker 1: is not good you don't want the dollar to decrease 563 00:30:07,720 --> 00:30:10,640 Speaker 1: and stay low. But on the short term, on the 564 00:30:10,680 --> 00:30:13,720 Speaker 1: near term, um, it can be good for the American 565 00:30:13,760 --> 00:30:17,040 Speaker 1: economy because if the dollar drops uh, then our money 566 00:30:17,080 --> 00:30:20,640 Speaker 1: is not gonna be worth this much elsewhere. So buying 567 00:30:20,800 --> 00:30:24,640 Speaker 1: things like products, are goods or services from overseas, it's 568 00:30:24,640 --> 00:30:27,840 Speaker 1: gonna be more expensive. So they might turn to the 569 00:30:27,880 --> 00:30:30,480 Speaker 1: home front to buy some of those goods and services, 570 00:30:30,520 --> 00:30:34,280 Speaker 1: which can actually inject uh like kind of supercharge the 571 00:30:34,760 --> 00:30:38,640 Speaker 1: local American economy on the near term, right, And so 572 00:30:38,720 --> 00:30:42,560 Speaker 1: that actually can in turn lead to inflation accidentally. So 573 00:30:42,600 --> 00:30:45,000 Speaker 1: if you have low interest rates, that means that money 574 00:30:45,080 --> 00:30:47,560 Speaker 1: is abundant and cheap borrowing is cheap. A lot of 575 00:30:47,560 --> 00:30:51,440 Speaker 1: people are out spending because interest rates are low. Um. 576 00:30:51,600 --> 00:30:55,320 Speaker 1: So the dollar is actually deflating, which means that prices 577 00:30:55,320 --> 00:30:59,000 Speaker 1: are going up. Right in some cases like this is 578 00:30:59,000 --> 00:31:02,960 Speaker 1: actually good. The Fed wants to keep inflation at about 579 00:31:03,040 --> 00:31:06,880 Speaker 1: two growth per year, So prices are going up. And 580 00:31:06,880 --> 00:31:08,640 Speaker 1: the reason why the Fed would want to do that, 581 00:31:09,160 --> 00:31:12,800 Speaker 1: as we'll see, is because there um, if you know 582 00:31:12,920 --> 00:31:16,320 Speaker 1: that prices are going to generally continue going up, you're 583 00:31:16,320 --> 00:31:19,320 Speaker 1: gonna buy something today rather than putting it off for later. 584 00:31:20,120 --> 00:31:22,520 Speaker 1: They love you spending money. That's what they want is 585 00:31:22,560 --> 00:31:26,240 Speaker 1: Americans buying things constantly, exactly. But you so you want 586 00:31:26,240 --> 00:31:28,240 Speaker 1: prices to go up, but at a steady rate and 587 00:31:28,280 --> 00:31:31,640 Speaker 1: a manageable rate. UM. The problem is is if you 588 00:31:31,880 --> 00:31:36,080 Speaker 1: if if money becomes too abundant in the economy, UM, 589 00:31:36,320 --> 00:31:38,479 Speaker 1: prices start to go up really quick because a lot 590 00:31:38,560 --> 00:31:42,680 Speaker 1: of people have money, but there's not enough supply to 591 00:31:42,720 --> 00:31:46,400 Speaker 1: satisfy that demand, which drives prices up even further, which 592 00:31:46,400 --> 00:31:49,840 Speaker 1: is pretty much the situation that we find ourselves in now. 593 00:31:50,040 --> 00:31:53,400 Speaker 1: So to deal with this, the FED has raised interest 594 00:31:53,480 --> 00:31:57,360 Speaker 1: rates in the hope that it becomes more expensive to 595 00:31:57,400 --> 00:32:01,120 Speaker 1: borrow money, people will spend less, and then it becomes 596 00:32:01,120 --> 00:32:05,520 Speaker 1: more lucrative to save money because interest rates for like 597 00:32:05,640 --> 00:32:08,360 Speaker 1: loans or for CDs for savings announce. All that stuff 598 00:32:08,400 --> 00:32:12,240 Speaker 1: goes up, all right, and so you're spending less. Prices 599 00:32:12,280 --> 00:32:15,280 Speaker 1: hopefully come down, but not so much that people start 600 00:32:15,320 --> 00:32:18,360 Speaker 1: to get laid off because consumer demand has bottomed out. 601 00:32:18,560 --> 00:32:21,320 Speaker 1: That's where we're at right now. This is the tight 602 00:32:21,400 --> 00:32:24,840 Speaker 1: rope that we're watching. The FED kind of transverse right now. 603 00:32:24,960 --> 00:32:27,040 Speaker 1: That's right, they're on a penny farthing on a tight 604 00:32:27,160 --> 00:32:32,120 Speaker 1: rope with a little tiny umbrella that's comically small, comically small. 605 00:32:32,160 --> 00:32:34,400 Speaker 1: All right, well, let's take our final break and we'll 606 00:32:34,400 --> 00:32:37,800 Speaker 1: finish up with a little bit on inflation and how 607 00:32:37,800 --> 00:32:40,080 Speaker 1: the interest rate continues to affect that right after this. 608 00:33:07,680 --> 00:33:09,600 Speaker 1: So I have a feeling I'm trying to think of 609 00:33:09,600 --> 00:33:11,920 Speaker 1: the stuff you should know, audience right now, all of 610 00:33:11,920 --> 00:33:16,800 Speaker 1: our friends out there, and I feel that of them 611 00:33:16,880 --> 00:33:21,400 Speaker 1: will not hear this part. Okay. Uh. The ones in 612 00:33:21,480 --> 00:33:25,040 Speaker 1: that that that managed to stick this one out are 613 00:33:25,080 --> 00:33:27,080 Speaker 1: probably like, I'm sort of learning this, guys, but it's 614 00:33:27,080 --> 00:33:30,400 Speaker 1: really confusing. And then there's ten percent are economists and 615 00:33:30,440 --> 00:33:33,400 Speaker 1: people that are sitting back and laughing and going, Nope, 616 00:33:33,480 --> 00:33:37,560 Speaker 1: they got that part wrong. Wrong again. Alright, guys. Yeah, 617 00:33:37,600 --> 00:33:39,960 Speaker 1: I feel like if you took all of the information 618 00:33:40,000 --> 00:33:42,720 Speaker 1: in this episode and cut and paste it into a 619 00:33:42,760 --> 00:33:46,160 Speaker 1: more coherent way that's Jerry's job, it would be it 620 00:33:46,200 --> 00:33:49,680 Speaker 1: would be Yeah, it would be like we we got it. Yeah. 621 00:33:49,840 --> 00:33:53,080 Speaker 1: I think we just explained it in a really confusing way. Probably, 622 00:33:53,080 --> 00:33:55,680 Speaker 1: so we're a little all over the place. Um. All right, 623 00:33:55,720 --> 00:33:59,920 Speaker 1: So we talked a little bit about inflation that they 624 00:34:00,400 --> 00:34:04,120 Speaker 1: inflation is good in a slow and steady way. Would 625 00:34:04,120 --> 00:34:05,880 Speaker 1: you say two percent a year? Yeah, that's what the 626 00:34:05,920 --> 00:34:09,520 Speaker 1: FED shoots for. Shoots for two percent. Um. No inflation 627 00:34:09,560 --> 00:34:11,839 Speaker 1: at all is is not good because that means you're 628 00:34:11,880 --> 00:34:17,400 Speaker 1: looking at deflation. We talked about stag inflation in one 629 00:34:17,480 --> 00:34:20,000 Speaker 1: of those a long time ago. What does stag inflation? 630 00:34:20,360 --> 00:34:22,640 Speaker 1: Was that it? Yeah? Yeah, so stagflation is no good. 631 00:34:22,680 --> 00:34:26,239 Speaker 1: I think that's when the rate is above like a 632 00:34:26,239 --> 00:34:29,439 Speaker 1: certain percentage, and unemployments below a certain percentage, and there's 633 00:34:29,520 --> 00:34:34,640 Speaker 1: one other indicator, uh, productivity I think maybe declines. Maybe, 634 00:34:34,719 --> 00:34:39,080 Speaker 1: so prices remain high and keep going higher, but the 635 00:34:39,120 --> 00:34:42,160 Speaker 1: wages are tumbling and people are getting laid off, and 636 00:34:42,200 --> 00:34:44,960 Speaker 1: like the economy is starting to cool, but prices are 637 00:34:45,000 --> 00:34:48,160 Speaker 1: staying high. Yeah, because ideally with inflation, wages are kind 638 00:34:48,160 --> 00:34:50,640 Speaker 1: of going up in lockstep. Yeah, Like that's what you want. 639 00:34:50,800 --> 00:34:53,600 Speaker 1: That's what you want ideally. I don't know the last 640 00:34:53,640 --> 00:34:57,600 Speaker 1: time that that actually happened. You're probably right, so um, 641 00:34:57,719 --> 00:35:00,000 Speaker 1: so you do want some inflation, but you don't want 642 00:35:00,120 --> 00:35:03,040 Speaker 1: too much. Inflation is the upshot of it and a 643 00:35:03,080 --> 00:35:05,520 Speaker 1: lot of um. We also did one on inflation two 644 00:35:05,680 --> 00:35:08,799 Speaker 1: is um. I can't remember what the name of it. 645 00:35:08,840 --> 00:35:10,919 Speaker 1: But it was just this past like June, I think, 646 00:35:10,960 --> 00:35:14,960 Speaker 1: I look really yeah. Um, So there's a couple of 647 00:35:15,080 --> 00:35:18,200 Speaker 1: explanations about how inflation works, and I don't know that 648 00:35:18,280 --> 00:35:20,360 Speaker 1: one is necessarily right and the other is wrong. I 649 00:35:20,400 --> 00:35:22,920 Speaker 1: think it just depends on the context, yeah, or the 650 00:35:22,920 --> 00:35:24,759 Speaker 1: way you're looking at it, seems like. But they both 651 00:35:24,800 --> 00:35:26,799 Speaker 1: seem really familiar. So I think we talked about them 652 00:35:26,840 --> 00:35:28,759 Speaker 1: in the inflation episode we would have had to have. 653 00:35:28,920 --> 00:35:31,919 Speaker 1: But one is called the demand pole theory, and that's 654 00:35:32,000 --> 00:35:34,560 Speaker 1: kind of the explanation for what's going on right now 655 00:35:34,680 --> 00:35:39,200 Speaker 1: that because of government stimulus, checks, because um of productivity 656 00:35:39,239 --> 00:35:41,959 Speaker 1: being through the roof, because interest rates being really low, 657 00:35:42,320 --> 00:35:46,080 Speaker 1: the economy has been a wash in easy money and 658 00:35:46,120 --> 00:35:49,000 Speaker 1: people are buying, spending buying. A lot of people have 659 00:35:49,280 --> 00:35:51,760 Speaker 1: a lot of money and are ready to spend it. Also, 660 00:35:51,800 --> 00:35:53,480 Speaker 1: I think there was a lot of probably pent up 661 00:35:53,520 --> 00:35:57,560 Speaker 1: demand from hanging around your house because of COVID. Now 662 00:35:57,600 --> 00:35:59,640 Speaker 1: you're like, take my money, I want to do something, 663 00:35:59,680 --> 00:36:02,640 Speaker 1: interest saying you know, I'm so bored. It's unprecedented stuff 664 00:36:03,400 --> 00:36:05,240 Speaker 1: these past couple of years, and I don't think anyone 665 00:36:05,280 --> 00:36:07,520 Speaker 1: really knew what the overall effect was going to be right. 666 00:36:07,520 --> 00:36:10,040 Speaker 1: So the tight rope, if you look closely, is actually 667 00:36:10,080 --> 00:36:13,319 Speaker 1: an ultra sharp razor blade that the FED is on 668 00:36:13,440 --> 00:36:16,839 Speaker 1: thanks to this unprecedented event that we've just gone through. 669 00:36:16,920 --> 00:36:19,600 Speaker 1: That's what they're trying to deal with. So, UM, the 670 00:36:19,680 --> 00:36:21,360 Speaker 1: idea of a bunch of people having a bunch of 671 00:36:21,360 --> 00:36:24,800 Speaker 1: money wanting everything all at once, from houses to cars 672 00:36:25,480 --> 00:36:30,720 Speaker 1: to um, you know, game boys, maybe vintage game boys, 673 00:36:31,320 --> 00:36:35,399 Speaker 1: um to poison t shirts um Like that means that 674 00:36:35,719 --> 00:36:38,640 Speaker 1: we're all competing with one another for the finite supply 675 00:36:38,800 --> 00:36:42,040 Speaker 1: of those things, which means that people selling them things 676 00:36:42,120 --> 00:36:46,160 Speaker 1: to just supply and demand. Basically, you know capitalism and economics, 677 00:36:46,760 --> 00:36:52,600 Speaker 1: Those prices rise, that's inflation. That's the demand pole theory, 678 00:36:52,920 --> 00:36:56,680 Speaker 1: that's right. The other is cost push uh And this 679 00:36:56,800 --> 00:36:59,360 Speaker 1: is basically kind of the opposite of that in some ways. 680 00:36:59,440 --> 00:37:03,800 Speaker 1: It's the cost of doing business is going up. Uh. 681 00:37:03,840 --> 00:37:07,439 Speaker 1: It is sort of separated from demand in that way. Uh. 682 00:37:07,480 --> 00:37:09,759 Speaker 1: And they're they're all kinds of reasons this might happen. 683 00:37:09,840 --> 00:37:13,040 Speaker 1: Dave mentioned a couple that like labor unions might have 684 00:37:13,400 --> 00:37:15,720 Speaker 1: um like have to pay people a lot more money 685 00:37:16,360 --> 00:37:20,480 Speaker 1: because they negotiated a new contract or something. Um. Exporting 686 00:37:20,480 --> 00:37:23,279 Speaker 1: foreign goods shoots through the roof or something, or maybe 687 00:37:23,360 --> 00:37:26,480 Speaker 1: there's a new administration all of a sudden, there's new 688 00:37:26,480 --> 00:37:30,920 Speaker 1: taxes going on. But basically it's cost push because the 689 00:37:31,120 --> 00:37:34,200 Speaker 1: rise in cost of doing that business, any business, is 690 00:37:34,200 --> 00:37:36,680 Speaker 1: going to push the price of the products higher and 691 00:37:36,760 --> 00:37:38,799 Speaker 1: higher and higher. Right. But it has nothing to do 692 00:37:38,840 --> 00:37:42,120 Speaker 1: with demand necessarily. It's just no, it's become the cost 693 00:37:42,200 --> 00:37:44,919 Speaker 1: of doing business has become more expensive. Right. And now 694 00:37:45,000 --> 00:37:48,040 Speaker 1: this is where like I did pretty good with the 695 00:37:48,120 --> 00:37:55,960 Speaker 1: stuff until interest rates affecting inflation because it seemed, I 696 00:37:55,960 --> 00:38:00,360 Speaker 1: don't know, it just seems so uh rigged, and like 697 00:38:01,440 --> 00:38:03,760 Speaker 1: I hate saying the word now, but that's the whole 698 00:38:04,360 --> 00:38:07,200 Speaker 1: that's the whole thing. That's the entire point of what 699 00:38:07,320 --> 00:38:10,120 Speaker 1: the Fed is doing. By raising that interest rate by 700 00:38:10,200 --> 00:38:14,360 Speaker 1: half of a percent, they're trying to manipulate the economy 701 00:38:14,560 --> 00:38:16,440 Speaker 1: and they're trying to do it in just the right 702 00:38:16,480 --> 00:38:20,239 Speaker 1: way so that they can keep those inflation, keep inflation, 703 00:38:20,360 --> 00:38:23,400 Speaker 1: slow it down, they can keep it in check. But 704 00:38:23,440 --> 00:38:25,960 Speaker 1: at the same time, they don't want to bring prices 705 00:38:26,000 --> 00:38:29,800 Speaker 1: down so much that businesses have less incentive to produce goods, 706 00:38:30,560 --> 00:38:33,680 Speaker 1: right because right now, with prices really high, businesses are 707 00:38:33,719 --> 00:38:36,400 Speaker 1: doing everything they can to get out as many widges 708 00:38:36,440 --> 00:38:39,200 Speaker 1: as possible because they can sell them for historically high 709 00:38:39,200 --> 00:38:43,239 Speaker 1: prices right now. If prices fall, eventually you get to 710 00:38:43,280 --> 00:38:46,640 Speaker 1: a point where businesses are like, it's not really worth 711 00:38:46,719 --> 00:38:49,400 Speaker 1: the investment. I I don't need this many people to 712 00:38:49,440 --> 00:38:52,319 Speaker 1: make this many whiges anymore. People start laying people off, 713 00:38:52,360 --> 00:38:55,600 Speaker 1: so unemployment starts to go up, and all of a sudden, 714 00:38:55,880 --> 00:38:59,440 Speaker 1: you've overstepped. You've cooled the economy too much by adjusting, 715 00:39:00,080 --> 00:39:03,759 Speaker 1: by targeting inflation, by adjusting the interest rate. That's the 716 00:39:04,080 --> 00:39:06,880 Speaker 1: precarious position that they're in right now. They're trying to 717 00:39:06,920 --> 00:39:09,719 Speaker 1: create that soft landing to get prices back down to 718 00:39:09,760 --> 00:39:14,640 Speaker 1: a normal rate of inflation without cooling off the economy inadvertently. 719 00:39:15,000 --> 00:39:18,080 Speaker 1: That's right. And uh, what I'm meant to look up 720 00:39:18,120 --> 00:39:22,399 Speaker 1: to see is it always by quarters of a point? No? 721 00:39:22,480 --> 00:39:24,400 Speaker 1: I mean they just did a half of a point No? No, no, 722 00:39:24,600 --> 00:39:28,879 Speaker 1: But but that's too quote. Yeah, is there any an 723 00:39:28,880 --> 00:39:31,560 Speaker 1: increment that's less than not that I've ever seen? Okay, 724 00:39:31,560 --> 00:39:33,360 Speaker 1: so they go a quarter at a time, I feel 725 00:39:33,400 --> 00:39:36,759 Speaker 1: like three quarters yeah, yeah, I think the most I 726 00:39:36,800 --> 00:39:39,359 Speaker 1: saw was one point seven five or something like that, 727 00:39:39,880 --> 00:39:45,000 Speaker 1: and that was back in two thousand, two thousand, I think, 728 00:39:45,040 --> 00:39:47,719 Speaker 1: so the last time they had such a huge hike 729 00:39:48,400 --> 00:39:50,239 Speaker 1: um as a as a half of a percent, it 730 00:39:50,280 --> 00:39:52,600 Speaker 1: was actually like two and three quarters of a percent 731 00:39:53,080 --> 00:39:55,680 Speaker 1: because I think of the dot com bubble, and they 732 00:39:55,719 --> 00:39:59,800 Speaker 1: probably overstepped because there's a recession after that, right and 733 00:40:00,000 --> 00:40:04,040 Speaker 1: in the housing uh situation. Yeah, that came later, right, 734 00:40:05,080 --> 00:40:06,880 Speaker 1: but that was I'm sure all of that has affected 735 00:40:06,880 --> 00:40:11,759 Speaker 1: all the tendrils effect one another. I'm sure. I think 736 00:40:11,800 --> 00:40:14,600 Speaker 1: there was somebody who had a theory that every recession 737 00:40:14,680 --> 00:40:17,520 Speaker 1: was connected to the last one somehow. Well, they say 738 00:40:17,520 --> 00:40:21,839 Speaker 1: we're headed for one uh. Since the nineteen fifties. Um, 739 00:40:21,840 --> 00:40:25,080 Speaker 1: there are economists that say every time we've exceeded four 740 00:40:25,120 --> 00:40:30,480 Speaker 1: percent inflation unemployment was below five percent, then recession comes 741 00:40:30,520 --> 00:40:33,400 Speaker 1: within two years of that moment, and that has happened 742 00:40:33,400 --> 00:40:37,120 Speaker 1: here in April two, right, So they're they're saying, like 743 00:40:37,160 --> 00:40:41,040 Speaker 1: recession is probably becoming historically speaking, Yeah, and so there's 744 00:40:41,080 --> 00:40:43,520 Speaker 1: some tips if you want to prepare for recession. It's 745 00:40:43,520 --> 00:40:46,200 Speaker 1: not necessarily the end of the world. Um. One thing 746 00:40:46,320 --> 00:40:49,120 Speaker 1: is because job market is so hot right now. If 747 00:40:49,160 --> 00:40:51,359 Speaker 1: you've been sitting there thinking like maybe I'll get a job. 748 00:40:51,480 --> 00:40:53,480 Speaker 1: Go get a job now, so you don't have to 749 00:40:53,560 --> 00:40:55,640 Speaker 1: like try to get a job during a recession and 750 00:40:55,680 --> 00:40:58,479 Speaker 1: you can already have the job. Um, if you're thinking 751 00:40:58,480 --> 00:41:02,640 Speaker 1: of selling your house, especially if you can downsize, this 752 00:41:02,719 --> 00:41:05,160 Speaker 1: is a good time to sell because the housing market 753 00:41:05,239 --> 00:41:07,640 Speaker 1: is really high right now, but you can expect it 754 00:41:07,680 --> 00:41:09,960 Speaker 1: to come down if we go into a recession. Right, 755 00:41:10,320 --> 00:41:12,600 Speaker 1: Set a little cash aside if you can sure. And 756 00:41:12,640 --> 00:41:15,440 Speaker 1: then if you're an investor, if you have stocks sticks 757 00:41:15,520 --> 00:41:20,200 Speaker 1: your plan, don't panic, don't worry, just stay the course. 758 00:41:20,840 --> 00:41:23,600 Speaker 1: You can weather a recession in your stock prices will 759 00:41:23,640 --> 00:41:26,080 Speaker 1: eventually go back up on the other side. Yeah, you 760 00:41:26,080 --> 00:41:27,440 Speaker 1: know what, there was one thing I meant to mention 761 00:41:27,520 --> 00:41:31,120 Speaker 1: before that's worth pointing out real quick. Is that remember 762 00:41:31,120 --> 00:41:33,880 Speaker 1: we were talking about the Fed sets this rate that 763 00:41:34,000 --> 00:41:36,800 Speaker 1: banks you know they lend each other money and stuff 764 00:41:37,640 --> 00:41:41,560 Speaker 1: federal something federal funds. Right. Yeah, they don't actually say 765 00:41:41,600 --> 00:41:43,479 Speaker 1: like you have to use this rate. Like banks still 766 00:41:43,480 --> 00:41:46,839 Speaker 1: negotiate that with with each other, but they're they're saying, 767 00:41:46,920 --> 00:41:49,000 Speaker 1: like that's the target rate, and then they do things 768 00:41:49,080 --> 00:41:51,319 Speaker 1: to try and nudge these banks toward that, right, Right, 769 00:41:51,360 --> 00:41:53,880 Speaker 1: And that's what they're doing when they're buying or selling 770 00:41:53,960 --> 00:41:59,080 Speaker 1: bonds on the market, they're injecting or removing cash to 771 00:41:59,360 --> 00:42:03,480 Speaker 1: make that the bank's actually charged closer to that target rate. 772 00:42:03,520 --> 00:42:06,040 Speaker 1: They've said that's how they manipulate. But it's not like 773 00:42:06,040 --> 00:42:07,960 Speaker 1: a bank says, well, we can only turn to this 774 00:42:08,000 --> 00:42:10,080 Speaker 1: because the FED said, So that's what I'm saying. It'd 775 00:42:10,080 --> 00:42:12,320 Speaker 1: be so much easier and so much more straightforward. The 776 00:42:12,360 --> 00:42:14,319 Speaker 1: Fed said, this is what you can charge each other 777 00:42:14,360 --> 00:42:16,879 Speaker 1: for the overnight rate and then adjust that rather than 778 00:42:17,400 --> 00:42:20,840 Speaker 1: setting a target and then manipulating the markets. Yeah, but 779 00:42:20,880 --> 00:42:23,080 Speaker 1: then that takes a negotiation out of the deal, and 780 00:42:23,120 --> 00:42:27,440 Speaker 1: like it's just no fun. Yeah, it's probably it. Actually, 781 00:42:28,520 --> 00:42:30,640 Speaker 1: you got anything else? I got nothing else? Well, that 782 00:42:30,719 --> 00:42:32,680 Speaker 1: was a good first take. Let's start over and try 783 00:42:32,680 --> 00:42:37,040 Speaker 1: it again. Well, since Chuck's made that sound, of course, 784 00:42:37,080 --> 00:42:41,680 Speaker 1: that means it's time for a listener mate. I'm gonna 785 00:42:41,680 --> 00:42:44,359 Speaker 1: call this uh new gin and tonic recipe I want 786 00:42:44,360 --> 00:42:46,440 Speaker 1: to try. Yeah, it sounds good. That just came in. 787 00:42:47,000 --> 00:42:50,040 Speaker 1: Hey guys, been listening for you years down end and 788 00:42:50,200 --> 00:42:54,319 Speaker 1: was keen to learn about more about Champagne. As a 789 00:42:54,320 --> 00:42:56,719 Speaker 1: fan of the Bubbly beverage but I got an extra 790 00:42:56,760 --> 00:42:59,839 Speaker 1: treat when he went on a tangent about gin. Uh. 791 00:43:00,000 --> 00:43:02,920 Speaker 1: This must have been a select champage. Yeah, Sampaigne one 792 00:43:02,920 --> 00:43:05,759 Speaker 1: came out this past Saturday. Yeah, in real life, I 793 00:43:05,960 --> 00:43:07,920 Speaker 1: r l so. Although I must say the best gin 794 00:43:08,000 --> 00:43:11,359 Speaker 1: in the world now comes from Australia, arguably Tasmania. I'm 795 00:43:11,400 --> 00:43:13,080 Speaker 1: also a big fan of the Saint George share war 796 00:43:13,320 --> 00:43:15,680 Speaker 1: and chuck. It does not taste like feet. Maybe you 797 00:43:15,680 --> 00:43:19,680 Speaker 1: should stop soaking your socks, your lime in your socks. 798 00:43:19,719 --> 00:43:22,239 Speaker 1: So this is a cocktail recipe I'm going to try 799 00:43:22,280 --> 00:43:25,400 Speaker 1: because it all sounds lovely. This is from Meg. Just 800 00:43:25,440 --> 00:43:29,680 Speaker 1: get your basic London dry gin and tonic, but instead 801 00:43:29,719 --> 00:43:32,640 Speaker 1: of just squirting a line in there, um, squeeze some 802 00:43:32,719 --> 00:43:36,960 Speaker 1: orange in there and add a full rind and then uh, 803 00:43:37,520 --> 00:43:41,360 Speaker 1: rub of fresh rosemary stick. Get that thing activated and 804 00:43:41,400 --> 00:43:43,560 Speaker 1: then put that in there and stirred around. You sound 805 00:43:43,640 --> 00:43:45,799 Speaker 1: like you're making this listener mail up. No, no no, no, 806 00:43:46,040 --> 00:43:49,439 Speaker 1: and then uh and cracked pepper. So you basically got 807 00:43:49,480 --> 00:43:53,839 Speaker 1: a gin and tonic with orange, rosemary and black pepper. Yeah, 808 00:43:53,920 --> 00:43:55,960 Speaker 1: be careful with the pepper though I've had it before 809 00:43:56,160 --> 00:43:59,680 Speaker 1: with even just not cracked, but whole peppercorns. You can 810 00:43:59,719 --> 00:44:03,239 Speaker 1: act sidentally bring your throat pretty good, Yeah, because the 811 00:44:03,320 --> 00:44:06,320 Speaker 1: gin like gets it ready and the black pepper finishes 812 00:44:06,400 --> 00:44:08,480 Speaker 1: the job. Okay, well I'm gonna try it out. That's 813 00:44:08,480 --> 00:44:12,319 Speaker 1: from Meg and Australia. Just remember a little goes a 814 00:44:12,320 --> 00:44:14,839 Speaker 1: long way. A little goes a long way. Thanks a lot, Meg, 815 00:44:15,080 --> 00:44:19,560 Speaker 1: we appreciate that. Um we love new gin recipes. Really, 816 00:44:19,560 --> 00:44:22,319 Speaker 1: any kind of recipe. Yeah, if you want to get 817 00:44:22,320 --> 00:44:24,239 Speaker 1: in touch with us like Meg did and give us 818 00:44:24,280 --> 00:44:26,839 Speaker 1: a recipe or just say hi or whatever, you can 819 00:44:26,880 --> 00:44:29,680 Speaker 1: send us an email to Stuff podcast at iHeart radio 820 00:44:29,760 --> 00:44:34,920 Speaker 1: dot com. Stuff you Should Know is a production of 821 00:44:34,960 --> 00:44:38,400 Speaker 1: iHeart Radio. For more podcasts my heart Radio, visit the 822 00:44:38,400 --> 00:44:41,440 Speaker 1: i heart Radio app, Apple Podcasts, or wherever you listen 823 00:44:41,480 --> 00:44:42,480 Speaker 1: to your favorite shows.