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The Scintillating World of Interest Rates · Stuff You Should Know

0:01
Speaker 1: Welcome to Stuff you Should Know, a production of I
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Speaker 1: Heart Radio. Hey, and welcome to the podcast. I'm Josh Clark,
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Speaker 1: and there's Charles W. Chuck Bryant seated directly across me,
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Speaker 1: within almost arms reaches, Jerry Rowland seeded to my right,
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Speaker 1: and I'm seated right here in my access in the
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Speaker 1: center of my own being. And this is stuff you
0:28
Speaker 1: should know. Yeah, in person a dish, first time since uh,
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Speaker 1: the the one time three D audio experience experiment. Well,
0:38
Speaker 1: I forgot about that. I marked it out of my head.
0:41
Speaker 1: That's the only time we've been in the same room
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Speaker 1: to record since COVID was that that those two episode?
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Speaker 1: I remember the second one. I remember the first one.
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Speaker 1: It was the Ivy League hobbit thing. Yeah, because Ivy
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Speaker 1: League and three D audio or just like it's such
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Speaker 1: low hanging fruit, you know. Yeah. But we're back because uh,
1:00
Speaker 1: you know, I put it on my Instagram. The studio
1:02
Speaker 1: is going away. We're moving house. And surprisingly to me,
1:07
Speaker 1: at least, you said, hey, guys, I would really like
1:10
Speaker 1: to record in there together one more time. Why is
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Speaker 1: that so surprised? I don't know. You don't seem overly
1:14
Speaker 1: sentimental about stuff like this, that's not true. I weep
1:17
Speaker 1: a lot, yeah, but not about studio rooms though. No,
1:22
Speaker 1: I mean I'll miss this particular room. Okay, me too.
1:25
Speaker 1: I mean this has been I mean, I think like
1:27
Speaker 1: seven of the most solid years we've ever had been
1:30
Speaker 1: right here. Pretty solid. Although the the corner office with
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Speaker 1: moving blankets his sound bafflers was a pretty solid couple
1:38
Speaker 1: of years to the quaint early days. I drove by
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Speaker 1: that building the other day too, and for the first
1:42
Speaker 1: time in forever, yeah, in Buckhead, and I was just like,
1:45
Speaker 1: do you remember there was like, for some reason, every
1:47
Speaker 1: time we recorded at like one thirty, when we had
1:50
Speaker 1: just started to get going, a fire truck with go
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Speaker 1: right outside every day at the same time. It's like
1:55
Speaker 1: they knew, oh the memories. So that's enough fun for now.
2:00
Speaker 1: Because we're talking about interest rates, all right. I don't
2:02
Speaker 1: know why I picked this. I mean, I do know why,
2:04
Speaker 1: but I just I'm so not good at this stuff.
2:06
Speaker 1: So I can imagine an ap economics like teacher picking
2:10
Speaker 1: this for for their high school class. So I think
2:13
Speaker 1: that's kind of like a public service you've done here. Well,
2:15
Speaker 1: I picked it because you know, the FED just raised
2:17
Speaker 1: the rate by it was half of a point, right, Yeah,
2:21
Speaker 1: biggest hikes in nineteen uh no, two thou Yeah, So
2:24
Speaker 1: I saw that biggest hike and I was like, oh
2:26
Speaker 1: my gosh, what was it? It was a half a point,
2:29
Speaker 1: And I was like, I don't understand this, so I
2:31
Speaker 1: might as well learn enough to tell other people a
2:33
Speaker 1: little bit about it. Do you understand now, Yeah, like
2:36
Speaker 1: that half of a percent is actually a pretty big deal.
2:39
Speaker 1: It is, and I understand now more than ever. There's
2:41
Speaker 1: like nine people that just controlled the economy of the
2:44
Speaker 1: United States, right exactly. Yeah, it's true. Yeah, that half
2:47
Speaker 1: of a percentage point is you'll see by the time
2:49
Speaker 1: we're done with this, everybody is basically the FED goingh yeah,
2:55
Speaker 1: they're really kind of nervous right now. And what they're
2:59
Speaker 1: going for by raised in the interest rate is to
3:01
Speaker 1: cool off the economy. We have inflation rates that haven't
3:04
Speaker 1: been since not a good time for inflation, um, And
3:09
Speaker 1: I mean we're talking the Great Recession was in there too, right, Like,
3:14
Speaker 1: this is a big deal, the inflation that we're seeing
3:16
Speaker 1: right now. So the FED is saying, Okay, we have
3:18
Speaker 1: an economy that is overheating, like you want some inflation
3:21
Speaker 1: as we'll see. But this is way too much inflation.
3:24
Speaker 1: The prices of like everything is going through the roof.
3:27
Speaker 1: People are getting really mad. We better do something about it.
3:30
Speaker 1: But what they're trying to do by raising the interest
3:33
Speaker 1: rates is to create a soft landing so that prices
3:36
Speaker 1: come down, but they don't affect productivity and employment. That's
3:39
Speaker 1: the big thing. And Ben ber Nankee put it once
3:42
Speaker 1: back when he was still just affect governor rather than
3:44
Speaker 1: the chair. Um. He said basically that what they were
3:47
Speaker 1: doing was like driving a car and paraphrasing here, well, um, yes, probably,
3:54
Speaker 1: he said the FED. Basically, what the FED does is
3:57
Speaker 1: is like driving a car with fogged up windshield, a
4:00
Speaker 1: faulty spedometer, and a brake, pedal and accelerator that when
4:05
Speaker 1: you press it, the car has a very significant delay
4:08
Speaker 1: before it responds. Oh, I thought you were going to say,
4:10
Speaker 1: a break in an accelerator that just switched positions without
4:13
Speaker 1: letting you know, which is with gender's on fire and
4:17
Speaker 1: there's monkeys everywhere and they're angry. Yeah. The delay, sure,
4:20
Speaker 1: because none of these uh you know, none of these moves.
4:23
Speaker 1: It's an immediate impact and it's sort of a fingers
4:26
Speaker 1: crossed behind your back kind of move. Yeah, almost always. Yeah.
4:29
Speaker 1: And so most people who are watching this are saying
4:31
Speaker 1: the Fed waited too long because they kept the economy
4:34
Speaker 1: juiced for years and years and years. It just kept
4:37
Speaker 1: getting hotter and hotter, and everybody's very happy until prices
4:39
Speaker 1: started going on, right, So they waited too long. So
4:42
Speaker 1: most most I shouldn't say most. A lot of people
4:45
Speaker 1: who know what they're talking about, say there's a recession
4:47
Speaker 1: coming pretty soon. So battened down the hat key indicators,
4:51
Speaker 1: as they say. Right, So, what does all this have
4:54
Speaker 1: to do with interest rates? Chuck, let's wrap well, I
4:57
Speaker 1: mean this is we'll get to the Fed, but this
4:59
Speaker 1: is generally about interest rates. The good news is everything
5:03
Speaker 1: else about interest rates is pretty basic. Uh. We are
5:06
Speaker 1: a nation and and and and a lot of ways
5:09
Speaker 1: a world that operates on loans and interest in barring money,
5:15
Speaker 1: and then banks borrow money from each other, and then
5:18
Speaker 1: the Fed lends money to banks, and it's just it's
5:20
Speaker 1: a it's a weird thing. It's a weird world economy
5:24
Speaker 1: that has been created over the past several hundred years.
5:26
Speaker 1: In this country, there's a lot of shiny shoot suits.
5:29
Speaker 1: People break your arms. Yeah, it's basically what it's all
5:32
Speaker 1: based on, sure, But it's all based on the fact
5:34
Speaker 1: that if you want to buy something as a person,
5:37
Speaker 1: uh and you know we're focusing on the United States here, uh,
5:41
Speaker 1: and you don't have the money, it's no big deal
5:43
Speaker 1: because you can get credit cards. If you want to
5:45
Speaker 1: pay large interest rates, you can get home loan or
5:49
Speaker 1: a car loan, because not everyone can shell out, you know,
5:52
Speaker 1: twenty two fifty grand for a car over my ch
5:54
Speaker 1: house's costs now eight eight million dollars. And you know
5:59
Speaker 1: there's risk get involved anytime you lend money and depending
6:02
Speaker 1: all of it really comes down to the risk of
6:04
Speaker 1: the loan as according to what the interest rates gonna
6:08
Speaker 1: end up being. Right. So what we're talking about now
6:09
Speaker 1: our interest rates on the micro level, like the you
6:12
Speaker 1: and me level, Like you're saying, how buying car, buying
6:14
Speaker 1: credit cards, all that stuff, and it's it is it's
6:17
Speaker 1: really basic, like you were saying, where um with it?
6:21
Speaker 1: With interest rates. If you go to get a loan, say,
6:26
Speaker 1: they're gonna look at a few things like what are
6:28
Speaker 1: you gonna buy? I'm gonna buy a really cool vintage
6:33
Speaker 1: poison T shirt on eBay ok Okay, it's like fifteen
6:36
Speaker 1: grand easily, I want to borrow some money to get
6:41
Speaker 1: that T shirt, that's right. Um, So they're gonna look
6:43
Speaker 1: at my whoever I borrow from is going to look
6:46
Speaker 1: at my um my credit score. Um, especially if it's
6:50
Speaker 1: an unsecured debt, right Yeah. Unsecure debt is basically any
6:56
Speaker 1: kind of credit card debt because they can't come and
6:58
Speaker 1: take away anything. Basically, they're not going to take my
7:00
Speaker 1: poison shirt if I default on the loan. The way
7:03
Speaker 1: that they get you is they affect your credit, but
7:06
Speaker 1: I still get to keep the poison shirt. So who's
7:08
Speaker 1: the sucker here, right? As opposed to a secured UH debt,
7:12
Speaker 1: which is you've got like a home mortgage, because they
7:14
Speaker 1: can come and take that right. So getting back to
7:16
Speaker 1: interest rates, then that would mean that since the bank
7:20
Speaker 1: that lent you the money to buy your home can
7:23
Speaker 1: legally seize your home because it's a secured debt, they're
7:27
Speaker 1: going to charge you less because at the end of
7:29
Speaker 1: the day, if you default, they can take your house.
7:32
Speaker 1: The credit card is going to charge you a higher
7:34
Speaker 1: interest rate because at the end of the day, if
7:37
Speaker 1: you default, they can't take that poison shirt. So they're
7:40
Speaker 1: going to charge more. And the reason that there's a
7:42
Speaker 1: difference in charging more or less is because the entire
7:45
Speaker 1: point of interest is that's the price you're paying for
7:50
Speaker 1: somebody to loan you money in exchange for them taking
7:53
Speaker 1: a risk, because there's always a risk that you're going
7:56
Speaker 1: to not pay it back, even if you have great credit.
7:59
Speaker 1: Something could happen. Um, you could break bad or something
8:03
Speaker 1: like that. Who knows, but there's always a risk. And
8:06
Speaker 1: then that's what interest is. It's it's you're it's the
8:09
Speaker 1: money they make for loaning you that money and taking
8:11
Speaker 1: that risk. That's right. Uh, And it's a little it's
8:14
Speaker 1: not counterintuitive, but it kind of works both ways because
8:16
Speaker 1: if you had the collateral of like let's say a
8:19
Speaker 1: home mortgage and they can take that house, that's gonna
8:22
Speaker 1: be a much lower interest rate, like you said, than
8:24
Speaker 1: the credit card, but it's also gonna be higher in
8:28
Speaker 1: some ways because it's a long term loan. Uh. If
8:32
Speaker 1: it's you know, it's kind of a negative outlook. But
8:34
Speaker 1: I think that banks look at people and say, well,
8:37
Speaker 1: if you have a thirty year home mortgage, like, I
8:39
Speaker 1: don't know what you're gonna be doing in twenty seven years,
8:41
Speaker 1: Like you may be broke, maybe destitute, you may be
8:44
Speaker 1: in the hospital and have no money anymore, So that's
8:48
Speaker 1: gonna be a little higher. Which is why if you can,
8:51
Speaker 1: like people always I mean financial people, I'm not one
8:54
Speaker 1: of those, but they always recommend you, like refire your
8:56
Speaker 1: house and bring it down to a fifteen year loan
8:59
Speaker 1: because it's risky and it'll be a little bit less
9:03
Speaker 1: of an annual percentage rate. Right. And then one of
9:05
Speaker 1: the other reasons if you've ever looked at a house
9:07
Speaker 1: or gotten a a mortgage, um, there's a big difference
9:12
Speaker 1: between the rate your charge for a fifteen year and
9:14
Speaker 1: a thirty year not just because there's a longer chance
9:17
Speaker 1: for you to default on the loan, but also because
9:20
Speaker 1: over the course of thirty years, inflation is going to
9:23
Speaker 1: actually eat into the amount of money you pay that
9:26
Speaker 1: bank back because it's going to depress the value of
9:29
Speaker 1: the dollar over time. Right, So when that bank is
9:32
Speaker 1: getting your hundred what's left on your hundred grand years
9:36
Speaker 1: from now, it's not gonna be the same as the
9:38
Speaker 1: value of that dollar now. Right. So there's actually two
9:41
Speaker 1: types of interest that you pay on say like a
9:44
Speaker 1: thirty year mortgage, or even a fifteen year mortgage, and
9:47
Speaker 1: that is the nominal rate, which is the rate you
9:51
Speaker 1: agree to, say ten percent, which is astronomical. It don't
9:54
Speaker 1: ever take a homeland out with a ten percent mortgage
9:57
Speaker 1: interest on it, right, Okay, Um, that's just a that's
10:01
Speaker 1: just a tip from me. Um. But over time, as
10:06
Speaker 1: inflation grows, um, let's say over that that fifteen years,
10:10
Speaker 1: inflation grows a total like four percent, you're actually paying
10:14
Speaker 1: the bank bank back, or they're actually getting back the
10:17
Speaker 1: value equal to about six percent of what they lent you.
10:20
Speaker 1: And what's that called? That is the real interest rate? Right,
10:24
Speaker 1: that's right, okay, I remember wake up everybody. By the way,
10:31
Speaker 1: all right, and by the way, Jerry's eating over there,
10:33
Speaker 1: and that's there's just nothing more normal and relaxing than
10:37
Speaker 1: us sitting in a room and Jerry chomping down next
10:40
Speaker 1: to us. I just want to acknowledge that it's kind
10:42
Speaker 1: of nice. It is nice. She's not eating me, so
10:45
Speaker 1: though this time it's the only thing missing from this.
10:47
Speaker 1: You know, most people fall asleep to like white noise
10:49
Speaker 1: or the sound the ocean. I have wanted just Jerry chewing.
10:53
Speaker 1: Let's be right to bed. All right, So I guess
10:56
Speaker 1: that's like just the basic over view of how regular
11:01
Speaker 1: interest rates work. It's really easy. It's very basic. It's
11:04
Speaker 1: the price you pay to borrow money rather than saving
11:06
Speaker 1: up to spend. Yeah, but no one cares about that
11:09
Speaker 1: stuff because you you know, you try and get your
11:11
Speaker 1: credit card rates down, you try and have good credit,
11:14
Speaker 1: and you buy a house, you try and get the
11:16
Speaker 1: best rate you can, and then it's all kind of
11:18
Speaker 1: said and done. But what everyone sits up and takes
11:20
Speaker 1: attention is when the Federal Reserve. And by the way,
11:25
Speaker 1: if you ever want to just send me into traffic,
11:28
Speaker 1: we should just do a whole podcast on the FED.
11:30
Speaker 1: I don't understand why they talk the way they do,
11:35
Speaker 1: like they're purposefully obtuse. I think like it's probably hard,
11:39
Speaker 1: like you can just read their game in the whole system,
11:41
Speaker 1: so they just want everyone to be even nice and sleepy.
11:43
Speaker 1: I guess, so when they're talking, it's just nuts. So
11:47
Speaker 1: when the chairperson of the Federal Reserve sits up and says,
11:50
Speaker 1: all right, we think we're gonna raise some interest rates. Uh.
11:55
Speaker 1: And by the way, banks they try to know before
11:57
Speaker 1: they even make that announcement because they're always watching the
12:00
Speaker 1: chairperson of the Fed and like, what they have a
12:03
Speaker 1: breakfast this morning, right, how are they feeling today? Um.
12:07
Speaker 1: Then that's why the recent point five percent adjustment was
12:10
Speaker 1: just such a big deal because it can have a
12:12
Speaker 1: really immediate and long term effect, which is kind of
12:16
Speaker 1: weird because immediately like stocks are going to do all
12:19
Speaker 1: kinds of crazy things, and then it's got this long
12:22
Speaker 1: term effect that they hope is going to work out,
12:25
Speaker 1: but it doesn't always because it's not an exact science. Yeah,
12:27
Speaker 1: really good example. That goes back to um bank mortgages. Right,
12:32
Speaker 1: So banks, I'm sure they carry out their own research
12:35
Speaker 1: as well to predict what's going to happen in the future,
12:37
Speaker 1: because they want to set their mortgage rates, their thirty
12:40
Speaker 1: year mortgage rates today with this close a forecast of
12:44
Speaker 1: what's going to happen with inflation over the next thirty
12:47
Speaker 1: years as they possibly can, because they wanted to squeeze
12:50
Speaker 1: out every real penny that they can from you from
12:53
Speaker 1: your loan. Right. That's like crystal ball stuff though you
12:55
Speaker 1: know it is, but I mean it's I think they've
12:58
Speaker 1: gotten kind of good at it, but it's still the
13:00
Speaker 1: end of the day, just an educated guess one of
13:02
Speaker 1: the things they do is watch what the FEDS doing.
13:04
Speaker 1: Is the Fed raising interest rates? Are the raising interest rates?
13:07
Speaker 1: Does that mean that they think inflation is going up?
13:09
Speaker 1: And the inflation is going up, then we need to
13:11
Speaker 1: adjust our mortgage loans. Right, that's pretty simple. But it
13:16
Speaker 1: just keeps going from there. So if mortgage rates increase,
13:20
Speaker 1: home buying slows, housing prices drop, that means new houses
13:25
Speaker 1: are being built less frequently, which means there's fewer carpenters
13:29
Speaker 1: being put to work. That means there's fewer lumber mills
13:33
Speaker 1: creating lumber for those houses. So those people are out
13:36
Speaker 1: of work. Those people are out of work, they're starting
13:38
Speaker 1: to default on their um their rent or their mortgages,
13:42
Speaker 1: and foreclosures start to go up, which further depresses the
13:45
Speaker 1: housing value or the housing market because a flood of
13:50
Speaker 1: houses start to come on the market because of foreclosures
13:52
Speaker 1: because banks want to offload them. Just from the FED
13:56
Speaker 1: saying we might increase by a quarter of a percent
14:01
Speaker 1: our interest rate. Yeah, yeah, that's the kind that's what's
14:04
Speaker 1: at stake when they're speaking out in public or even
14:07
Speaker 1: like making moves, yeah, like with without speaking at all. Yeah,
14:11
Speaker 1: it's it's pretty scary and precarious. Um, the FED itself,
14:15
Speaker 1: and like I said, maybe we'll do if I guess
14:17
Speaker 1: we have to at some point on the FED. But
14:19
Speaker 1: just as a broad overview of the Federal Reserve is
14:23
Speaker 1: the central bank of the US. There twelve regional Federal
14:26
Speaker 1: Reserve banks and a seven member board I talked about.
14:29
Speaker 1: I don't know if I said seven people, but a
14:32
Speaker 1: seven member board of governors in d c UH. And
14:35
Speaker 1: it was created in nineteen thirteen too, you know, ideally
14:38
Speaker 1: stabilize and secure our economy because at the time it
14:41
Speaker 1: was sort of the wild West when it comes to banking. Yeah,
14:44
Speaker 1: there are a lot of bank panics actually, where people
14:46
Speaker 1: would no good make a run on a bank and
14:48
Speaker 1: the bank would be like, we don't have any more money,
14:50
Speaker 1: and they would go under and like people would lose
14:52
Speaker 1: their entire savings. Yeah, I mean, it was a pretty
14:54
Speaker 1: brilliant creation. Uh. And one of the things the FED
14:57
Speaker 1: does a lot, But one of the things the Federal
14:59
Speaker 1: Reserve does is it has a lot of cash and
15:02
Speaker 1: it helps supply the banks that you and I bank
15:05
Speaker 1: at with cash reserves. And um, maybe let's take a break.
15:10
Speaker 1: That's a good Cliffhanger, and we'll talk about the fact
15:13
Speaker 1: that banks, by law I have to keep certain amounts
15:15
Speaker 1: of money, and it gets even more boring. I can't
15:18
Speaker 1: believe that Cliffhanger. Okay, Chuck. Before we get into um
15:50
Speaker 1: the reserve requirements of banks, I have a pretty neat
15:55
Speaker 1: little story. Actually, we're talking about banking panics, and there
15:58
Speaker 1: was one in two or at least there was one
16:02
Speaker 1: bank that went under UM and they had a branch
16:05
Speaker 1: in Sacramento that a guy named Louis Remy I'm gonna
16:09
Speaker 1: say UM went to go get his twelve thousand dollars
16:12
Speaker 1: that he'd saved up. It's about like three hundred and
16:15
Speaker 1: fifty thousand dollars in today's money. It was like his
16:17
Speaker 1: nest dagg right. He went to go get it out
16:20
Speaker 1: and was told that the bank had failed and they
16:22
Speaker 1: didn't have his money. So you know what Louis or
16:25
Speaker 1: Louis Remy did. He got on a horse and he
16:28
Speaker 1: rode from Sacramento to Portland, Oregon, six hundred and sixty
16:34
Speaker 1: five miles in six days. He rode for a hundred
16:38
Speaker 1: and forty three hours. Ten of those was to stop
16:42
Speaker 1: to sleep. I thought I was going to say, to
16:44
Speaker 1: get a new horse, because he had to do that.
16:46
Speaker 1: He did that like in an instant, right, So for
16:50
Speaker 1: for six days he slept ten hours to ride to
16:52
Speaker 1: Portland's got there before the steamership that was carrying news
16:56
Speaker 1: of the bank collapsed Sacramento. So he was racing the steamer,
17:00
Speaker 1: got there an hour or two before the steamer got
17:02
Speaker 1: his twelve tho dollars out of the Portlands brand to
17:05
Speaker 1: the bank, and like within an hour or two of
17:09
Speaker 1: that bank collapsing, finding out that there was no more
17:11
Speaker 1: bank anymore. Isn't that amazing? I'm glad his flex capacitor
17:16
Speaker 1: was working. Basically, that's basically what he did. But the
17:19
Speaker 1: horse version of that man, yeah, he said, oh I
17:21
Speaker 1: should give myself an hour. That should be plenty of time.
17:25
Speaker 1: I never understand that in time travel movies. I don't either.
17:27
Speaker 1: It's like, go back the week before time. Just take
17:29
Speaker 1: it easy, maybe get like a snack. You have time,
17:32
Speaker 1: all right, So we promise the scintillating details of the
17:37
Speaker 1: fact that banks have to keep a certain amount of
17:39
Speaker 1: money in their reserves. And that is because you know,
17:43
Speaker 1: if every I mean it's not the eighteen hundreds, not
17:45
Speaker 1: everyone's gonna say I gotta go to that Chase bank
17:48
Speaker 1: and withdraw every penny all at the same time. But
17:50
Speaker 1: they got to be protected against that. Oh, it could happen, though,
17:53
Speaker 1: there's still sure. But the problem is once a panic starts,
17:57
Speaker 1: it spreads like wildfire, because that means, well, if these
18:00
Speaker 1: people are panninging, even though I'm not panninging, I better
18:03
Speaker 1: go to the bank anyway to get my money out
18:05
Speaker 1: before it collapses, before more of these idiots panic and
18:08
Speaker 1: take their money out. Right, So, whether you're panicked or not,
18:11
Speaker 1: it actually makes sense if there's a panic and a
18:14
Speaker 1: run going on in your bank to go withdraw, and
18:16
Speaker 1: it's just this chain reaction that starts. So the FED
18:19
Speaker 1: protects against that by by requiring that these banks have
18:24
Speaker 1: these reserves. Right, yes, so it's known as the reserve requirement.
18:27
Speaker 1: It's based on a percentage of all the deposits in
18:31
Speaker 1: that bank. It's very simple calculation. And then they they
18:36
Speaker 1: these banks have to have non intersparing accounts at the
18:40
Speaker 1: Federal Reserve to make sure the Federal Reserve can cover everything, right,
18:45
Speaker 1: to make sure that it's like, okay, you have to
18:47
Speaker 1: have this much, we're going to hang onto it. For you.
18:50
Speaker 1: That's right. So they're they're taking this average every day,
18:53
Speaker 1: but it's over it's an average over two weeks basically
18:57
Speaker 1: to determine whether or not it's meeting that reserve requirement.
19:00
Speaker 1: And here's the thing that I don't know. I guess
19:03
Speaker 1: it's sort of surprised me. Is banks, depending on what's
19:06
Speaker 1: going on on a day to day basis, are borrowing
19:08
Speaker 1: and lending money to each other well to cover themselves. Yes,
19:11
Speaker 1: so that sounds frightening, but it makes sense. But so
19:14
Speaker 1: they've got like a pile of money, and whatever money
19:18
Speaker 1: they have, they can make more money if they lend
19:21
Speaker 1: that money out, if they put it to work, right, Yeah,
19:23
Speaker 1: I mean that's what they want to do, is just
19:24
Speaker 1: to get more interest. So if on one day they're like, oh,
19:27
Speaker 1: we've len out more than we we have in reserve,
19:31
Speaker 1: we go to another bank that has an excess and
19:35
Speaker 1: borrow it from them and then we put it in
19:37
Speaker 1: our FED account and everything's fine. We're within the legal
19:40
Speaker 1: limits for those reserve requirements. Right. But if they run
19:44
Speaker 1: out of you know, banks to trade with basically at
19:47
Speaker 1: the end of the day, then they can go to
19:49
Speaker 1: the FED and say big Mama, we need a little
19:52
Speaker 1: money from you, actually, right, And the FED doesn't like that,
19:54
Speaker 1: so they actually charge banks more for the UM for
19:58
Speaker 1: to borrow money directly from the BED for overnight requirements.
20:01
Speaker 1: That's right, but it's ironically called the discount rate even
20:04
Speaker 1: though it's the larger of the two rates. The other rate,
20:07
Speaker 1: where a bank borrows from another bank overnight to satisfy
20:11
Speaker 1: the FED reserve requirements, that's called the UM Federal Funds rate. Right,
20:18
Speaker 1: I answered my own right, I thought you're waiting on me. Uh.
20:22
Speaker 1: And within that discount rate, there are a few different tiers, uh,
20:26
Speaker 1: kind of just like you would scale or a tier
20:29
Speaker 1: any loan. You've got your primary rate, which is the
20:32
Speaker 1: lowest one, and that's you know, if you're a great uh,
20:35
Speaker 1: if you're a great bank and good standing, you're gonna
20:36
Speaker 1: get that rate. You've got the secondary rate. Uh. And
20:40
Speaker 1: that's if I think this is by the way, is
20:42
Speaker 1: Dave Ruse but from house works dot com. Uh, And
20:45
Speaker 1: Dave said, slightly less sound institutions Galloping Gulch State Bank. Yeah. Probably.
20:51
Speaker 1: And then you've got your seasonal rate. And these are
20:54
Speaker 1: very small banks with that are based sort of around
20:56
Speaker 1: seasonal economies. Like tourism or agricultural something like that. Yeah,
21:00
Speaker 1: because like and when when it comes time to bring
21:04
Speaker 1: in the crops for harvest, all the farmers come and say,
21:07
Speaker 1: I need some money to get this stuff to market.
21:08
Speaker 1: I need loans, and those banks get strained at those times. Yeah.
21:11
Speaker 1: Or there's lots of great I feel old timey heist
21:15
Speaker 1: movies where uh, someone will you know, like during crop season,
21:20
Speaker 1: they'll know a bank will have just be flooded with
21:22
Speaker 1: cash on a certain afternoon. Yeah, there's a movie you're
21:25
Speaker 1: talking about, Raising Arizona that was definitely the case. Okay,
21:29
Speaker 1: was that it? But Wisdom, it's been in other movies.
21:31
Speaker 1: To Familio Estevez, is that a bank rubber? He was
21:35
Speaker 1: like a Robin Hood where he I think he robbed
21:37
Speaker 1: banks to get rid of the deeds so that the
21:39
Speaker 1: farmers could couldn't have their farms foreclosed. I never saw that.
21:43
Speaker 1: I know the movie you're talking about that, I saw it, Wisdom,
21:46
Speaker 1: I saw it. Hey, while we're talking about movies, I've
21:50
Speaker 1: been meaning to give a shout out to so our
21:51
Speaker 1: friend Toby his production company made a movie called The
21:55
Speaker 1: Green Night that slipped under the radar, not for me,
21:59
Speaker 1: buddy that's on the theater. Wasn't that an amazing movie?
22:01
Speaker 1: It is and one of the most like, uh, just
22:05
Speaker 1: sort of like in a in a day in time
22:07
Speaker 1: where everything is a Marvel movie or something, to to
22:12
Speaker 1: have something so original based on like an ancient tale.
22:16
Speaker 1: It was. It was great. It was so David Lowry
22:18
Speaker 1: is the director, and he's just a straight up a tier. Yeah,
22:21
Speaker 1: he's just making the movies that he wants to make.
22:24
Speaker 1: And their production companies called Sailor Bear. I think I'm
22:27
Speaker 1: so mad that that got snubbed at the Oscar. It's crazy.
22:31
Speaker 1: It's like cinematography and set design and costumes like it
22:34
Speaker 1: got nothing. It's crazy. It's wonderful. Yeah, and I think
22:38
Speaker 1: picked it up, which means their streak of like amazing movies, yes, flawless.
22:44
Speaker 1: It's a flawless streak they have. They haven't stumbled once
22:47
Speaker 1: in the entire the entire history of Come at me.
22:52
Speaker 1: If you've got a bad movie, it's not you know
22:55
Speaker 1: what I hear? Crickets? Is there a movie called Crickets?
23:00
Speaker 1: Maybe there's a movie out there called egg Egg from
23:05
Speaker 1: the sixties. Really yeah, I haven't seen it though, I
23:08
Speaker 1: just read about in Uncle John's Bathroom. Reader, I thought
23:10
Speaker 1: you were talking about the movie head the Monkeys, Monkeys
23:14
Speaker 1: right where they they tried to do the whole smile thing.
23:18
Speaker 1: Oh really, I think so they were there was kind
23:20
Speaker 1: of their answer to the beach Boys. Interesting. Alright, Uh,
23:24
Speaker 1: can we just keep talking about that stuff? All? Right?
23:29
Speaker 1: Here we go, Let's get back on this. The Fed
23:31
Speaker 1: funds rate. Is that what we're talking about. Yeah, we're
23:34
Speaker 1: talking about that's the rate that banks charge one another
23:37
Speaker 1: to borrow overnight to satisfy the reserve. Right, And this
23:40
Speaker 1: is the one that is just very simple supply and demand.
23:43
Speaker 1: If there are uh, there's a lot of cash and
23:47
Speaker 1: a lot of banks, then the rate is going to
23:49
Speaker 1: be lower. If there's demand for more money, then it's
23:52
Speaker 1: going to be higher. The Fed controls all of this
23:55
Speaker 1: in a roundabout way. Yeah, I mean they kind of
23:59
Speaker 1: control all of it in the roundabout way. And like
24:01
Speaker 1: also the economy like a Rube Goldberg mouse trap kind
24:04
Speaker 1: of way. Like it'd be so much easier if they
24:06
Speaker 1: were like, this is what you guys can charge one
24:09
Speaker 1: another as an interest rate. Yeah, but they don't do that.
24:12
Speaker 1: They let the market decide. They set a target and
24:14
Speaker 1: then let the market work and then they manipulate the market.
24:17
Speaker 1: That's right. So if the FED wants to lower that
24:20
Speaker 1: funds rate, it's going to buy securities from those banks.
24:23
Speaker 1: There's gonna be a more cash on hand all of
24:25
Speaker 1: a sudden. If they want to raise the funds rate,
24:28
Speaker 1: they're gonna sell government securities, which are I mean, anytime
24:31
Speaker 1: you start talking debt instruments, I just go a little
24:34
Speaker 1: crazy with excitement. But government securities are just debt instruments.
24:38
Speaker 1: They're used to fund government operations. Uh, it's basically so
24:42
Speaker 1: like the way I understood it was if Uh, like
24:45
Speaker 1: a lot of it. It's military spending and operations, and
24:49
Speaker 1: it just keeps them from having to like raise and
24:51
Speaker 1: lower taxes a lot because they want to keep taxes
24:53
Speaker 1: kind of stable. Right. So yeah, So with all that
24:56
Speaker 1: deficit spending, what they're doing is if if if the
24:59
Speaker 1: government could operate just on the taxes tax revenue it
25:02
Speaker 1: brings in, it would be it would be neutral, It
25:05
Speaker 1: wouldn't be operating at a depth that the wouldn't be
25:07
Speaker 1: any profit would be great. But it spends more money
25:10
Speaker 1: than it takes in, so it has to issue that debt,
25:12
Speaker 1: which is basically loans in the form of treasury bills.
25:15
Speaker 1: And that's what the FED is doing when they're out
25:18
Speaker 1: there buying or selling treasury bills, these debt securities. They're
25:24
Speaker 1: they're taking um debt in or out of the market.
25:27
Speaker 1: They're adding cash into or out of the market. And
25:30
Speaker 1: it's not like banks who trade with it's just a
25:34
Speaker 1: very select elite group of of what it's called primary
25:36
Speaker 1: dealers who buy and sell um these treasury bills with
25:41
Speaker 1: the Fed. They don't have a choice in this. If
25:44
Speaker 1: you want to be a primary dealer, you have to
25:46
Speaker 1: buy or sell depending on what the Fed wants to
25:48
Speaker 1: do at any given time. Right, And so by doing that,
25:52
Speaker 1: they say, all right, we want to buy a bunch
25:54
Speaker 1: of treasury bills because we want to inject cash into
25:56
Speaker 1: the market. UM. Here like sell those to us. Here's
26:01
Speaker 1: the cash. And by the way, we're not actually giving
26:04
Speaker 1: you this cash to go do anything with. This cash
26:06
Speaker 1: goes into your FED Federal Reserve account. Remember, and this
26:12
Speaker 1: is really important, Chuck, that account is non interest sparing.
26:15
Speaker 1: It makes zero sense in both sense of the word
26:19
Speaker 1: to um leave money in there when you, as a
26:22
Speaker 1: bank could make some money off of it loaning it
26:25
Speaker 1: to other banks. So the more money that the FED
26:28
Speaker 1: is put into those accounts, the more money there is
26:31
Speaker 1: to loan, meaning that interest rate drops. And this is
26:35
Speaker 1: also arcane. And again this is like a dozen people
26:38
Speaker 1: who deal with this on a day to day basis,
26:41
Speaker 1: But it has a ripple effect in that, um, when
26:45
Speaker 1: you when you lower the federal funds rate, those banks
26:50
Speaker 1: in turn end up lowering their rates to people like
26:53
Speaker 1: you and me. It has a cascading effect throughout the economy. Yeah,
26:57
Speaker 1: Like I think I used to look at the Federal
27:00
Speaker 1: eight and when they would move that and think that's
27:02
Speaker 1: the home mortgage loan rate. Essentially it translates into that.
27:07
Speaker 1: It does in a certain way for sure, but I
27:08
Speaker 1: thought the Fed sort of set that until last week.
27:13
Speaker 1: But the same but it's just you know, it's it's
27:18
Speaker 1: passed along on you know, like you said, both ways,
27:21
Speaker 1: either in better interest rates or worse interest rates for
27:24
Speaker 1: everything across the board for regular smells like us. Uh,
27:28
Speaker 1: there's also I mean, you can also buy you know,
27:31
Speaker 1: we'll talk about inflation in the stock market, which is
27:33
Speaker 1: where I get really confused. But um, remember how I
27:36
Speaker 1: was talking about, like the interest rates have to do
27:39
Speaker 1: with nothing but risk. Basically, if you want to buy
27:42
Speaker 1: if if you want to get out of the stock
27:44
Speaker 1: market and just say I'm only going to invest in
27:46
Speaker 1: like bonds and things like that in securities, then uh,
27:50
Speaker 1: you're not gonna make much money. The return on those
27:52
Speaker 1: is very very low because their government backed, which means
27:55
Speaker 1: the risk is very very low. People play the stock
27:58
Speaker 1: market because ideally you can get it like eight uh
28:04
Speaker 1: more money every year that you're doing it, whereas you're
28:06
Speaker 1: making like half of a percent. And that's the same way.
28:11
Speaker 1: Like you know, you you you make interest when you
28:14
Speaker 1: have money in the bank because the bank wants to
28:16
Speaker 1: use your money, so they're kind of taking a loan
28:19
Speaker 1: from you every day. You just don't realize it, but
28:22
Speaker 1: you get just a tiny less This why it doesn't
28:23
Speaker 1: payage to keep a ton of money in the bank,
28:25
Speaker 1: because you're making a tiny amount there too. Yeah, and
28:28
Speaker 1: so the federal funds rate UM has an effect on
28:32
Speaker 1: that as well. Right in the real world with the
28:34
Speaker 1: stock market. So if the federal if the Fed takes
28:38
Speaker 1: a bunch of money out of the out of the
28:40
Speaker 1: market um and floods the market with with like um
28:46
Speaker 1: treasury bills, right those treasury bills are easy peasy to
28:50
Speaker 1: come by, which means that they're worth less, which means
28:54
Speaker 1: that people are going to get less money from investing
28:57
Speaker 1: in them, which means they're going to turn to the
28:59
Speaker 1: style market because you're gonna make more money, right even
29:03
Speaker 1: though it's riskier. That juices the stock market when interest
29:07
Speaker 1: rates are low. When interest rates are high, meaning the
29:10
Speaker 1: Fed has soaked up a bunch of money, um, and
29:14
Speaker 1: they have sold a bunch of those those like treasury bills. Um.
29:20
Speaker 1: That means, yeah, I think I'm right, it's easy to get.
29:24
Speaker 1: That means that the interest rate has gone up, which
29:27
Speaker 1: means that you can get more money from those treasury bills,
29:30
Speaker 1: which makes the stock market less attractive to people who
29:34
Speaker 1: are investing in it, which usually signals a cooler economy.
29:38
Speaker 1: That's right. And I guess the final effect here before
29:41
Speaker 1: we break and then talk about inflation, which is so
29:46
Speaker 1: so fun, is if the FED lowers the funds rate,
29:50
Speaker 1: it's going to decrease the value of the dollar on
29:53
Speaker 1: the exchange market, on the foreign exchange market. And that
29:56
Speaker 1: is um, it's a little counterintuitive, but um, a little
30:01
Speaker 1: bit of a like a long term drop like the
30:04
Speaker 1: is not good you don't want the dollar to decrease
30:07
Speaker 1: and stay low. But on the short term, on the
30:10
Speaker 1: near term, um, it can be good for the American
30:13
Speaker 1: economy because if the dollar drops uh, then our money
30:17
Speaker 1: is not gonna be worth this much elsewhere. So buying
30:20
Speaker 1: things like products, are goods or services from overseas, it's
30:24
Speaker 1: gonna be more expensive. So they might turn to the
30:27
Speaker 1: home front to buy some of those goods and services,
30:30
Speaker 1: which can actually inject uh like kind of supercharge the
30:34
Speaker 1: local American economy on the near term, right, And so
30:38
Speaker 1: that actually can in turn lead to inflation accidentally. So
30:42
Speaker 1: if you have low interest rates, that means that money
30:45
Speaker 1: is abundant and cheap borrowing is cheap. A lot of
30:47
Speaker 1: people are out spending because interest rates are low. Um.
30:51
Speaker 1: So the dollar is actually deflating, which means that prices
30:55
Speaker 1: are going up. Right in some cases like this is
30:59
Speaker 1: actually good. The Fed wants to keep inflation at about
31:03
Speaker 1: two growth per year, So prices are going up. And
31:06
Speaker 1: the reason why the Fed would want to do that,
31:09
Speaker 1: as we'll see, is because there um, if you know
31:12
Speaker 1: that prices are going to generally continue going up, you're
31:16
Speaker 1: gonna buy something today rather than putting it off for later.
31:20
Speaker 1: They love you spending money. That's what they want is
31:22
Speaker 1: Americans buying things constantly, exactly. But you so you want
31:26
Speaker 1: prices to go up, but at a steady rate and
31:28
Speaker 1: a manageable rate. UM. The problem is is if you
31:31
Speaker 1: if if money becomes too abundant in the economy, UM,
31:36
Speaker 1: prices start to go up really quick because a lot
31:38
Speaker 1: of people have money, but there's not enough supply to
31:42
Speaker 1: satisfy that demand, which drives prices up even further, which
31:46
Speaker 1: is pretty much the situation that we find ourselves in now.
31:50
Speaker 1: So to deal with this, the FED has raised interest
31:53
Speaker 1: rates in the hope that it becomes more expensive to
31:57
Speaker 1: borrow money, people will spend less, and then it becomes
32:01
Speaker 1: more lucrative to save money because interest rates for like
32:05
Speaker 1: loans or for CDs for savings announce. All that stuff
32:08
Speaker 1: goes up, all right, and so you're spending less. Prices
32:12
Speaker 1: hopefully come down, but not so much that people start
32:15
Speaker 1: to get laid off because consumer demand has bottomed out.
32:18
Speaker 1: That's where we're at right now. This is the tight
32:21
Speaker 1: rope that we're watching. The FED kind of transverse right now.
32:24
Speaker 1: That's right, they're on a penny farthing on a tight
32:27
Speaker 1: rope with a little tiny umbrella that's comically small, comically small.
32:32
Speaker 1: All right, well, let's take our final break and we'll
32:34
Speaker 1: finish up with a little bit on inflation and how
32:37
Speaker 1: the interest rate continues to affect that right after this.
33:07
Speaker 1: So I have a feeling I'm trying to think of
33:09
Speaker 1: the stuff you should know, audience right now, all of
33:11
Speaker 1: our friends out there, and I feel that of them
33:16
Speaker 1: will not hear this part. Okay. Uh. The ones in
33:21
Speaker 1: that that that managed to stick this one out are
33:25
Speaker 1: probably like, I'm sort of learning this, guys, but it's
33:27
Speaker 1: really confusing. And then there's ten percent are economists and
33:30
Speaker 1: people that are sitting back and laughing and going, Nope,
33:33
Speaker 1: they got that part wrong. Wrong again. Alright, guys. Yeah,
33:37
Speaker 1: I feel like if you took all of the information
33:40
Speaker 1: in this episode and cut and paste it into a
33:42
Speaker 1: more coherent way that's Jerry's job, it would be it
33:46
Speaker 1: would be Yeah, it would be like we we got it. Yeah.
33:49
Speaker 1: I think we just explained it in a really confusing way. Probably,
33:53
Speaker 1: so we're a little all over the place. Um. All right,
33:55
Speaker 1: So we talked a little bit about inflation that they
34:00
Speaker 1: inflation is good in a slow and steady way. Would
34:04
Speaker 1: you say two percent a year? Yeah, that's what the
34:05
Speaker 1: FED shoots for. Shoots for two percent. Um. No inflation
34:09
Speaker 1: at all is is not good because that means you're
34:11
Speaker 1: looking at deflation. We talked about stag inflation in one
34:17
Speaker 1: of those a long time ago. What does stag inflation?
34:20
Speaker 1: Was that it? Yeah? Yeah, so stagflation is no good.
34:22
Speaker 1: I think that's when the rate is above like a
34:26
Speaker 1: certain percentage, and unemployments below a certain percentage, and there's
34:29
Speaker 1: one other indicator, uh, productivity I think maybe declines. Maybe,
34:34
Speaker 1: so prices remain high and keep going higher, but the
34:39
Speaker 1: wages are tumbling and people are getting laid off, and
34:42
Speaker 1: like the economy is starting to cool, but prices are
34:45
Speaker 1: staying high. Yeah, because ideally with inflation, wages are kind
34:48
Speaker 1: of going up in lockstep. Yeah, Like that's what you want.
34:50
Speaker 1: That's what you want ideally. I don't know the last
34:53
Speaker 1: time that that actually happened. You're probably right, so um,
34:57
Speaker 1: so you do want some inflation, but you don't want
35:00
Speaker 1: too much. Inflation is the upshot of it and a
35:03
Speaker 1: lot of um. We also did one on inflation two
35:05
Speaker 1: is um. I can't remember what the name of it.
35:08
Speaker 1: But it was just this past like June, I think,
35:10
Speaker 1: I look really yeah. Um, So there's a couple of
35:15
Speaker 1: explanations about how inflation works, and I don't know that
35:18
Speaker 1: one is necessarily right and the other is wrong. I
35:20
Speaker 1: think it just depends on the context, yeah, or the
35:22
Speaker 1: way you're looking at it, seems like. But they both
35:24
Speaker 1: seem really familiar. So I think we talked about them
35:26
Speaker 1: in the inflation episode we would have had to have.
35:28
Speaker 1: But one is called the demand pole theory, and that's
35:32
Speaker 1: kind of the explanation for what's going on right now
35:34
Speaker 1: that because of government stimulus, checks, because um of productivity
35:39
Speaker 1: being through the roof, because interest rates being really low,
35:42
Speaker 1: the economy has been a wash in easy money and
35:46
Speaker 1: people are buying, spending buying. A lot of people have
35:49
Speaker 1: a lot of money and are ready to spend it. Also,
35:51
Speaker 1: I think there was a lot of probably pent up
35:53
Speaker 1: demand from hanging around your house because of COVID. Now
35:57
Speaker 1: you're like, take my money, I want to do something,
35:59
Speaker 1: interest saying you know, I'm so bored. It's unprecedented stuff
36:03
Speaker 1: these past couple of years, and I don't think anyone
36:05
Speaker 1: really knew what the overall effect was going to be right.
36:07
Speaker 1: So the tight rope, if you look closely, is actually
36:10
Speaker 1: an ultra sharp razor blade that the FED is on
36:13
Speaker 1: thanks to this unprecedented event that we've just gone through.
36:16
Speaker 1: That's what they're trying to deal with. So, UM, the
36:19
Speaker 1: idea of a bunch of people having a bunch of
36:21
Speaker 1: money wanting everything all at once, from houses to cars
36:25
Speaker 1: to um, you know, game boys, maybe vintage game boys,
36:31
Speaker 1: um to poison t shirts um Like that means that
36:35
Speaker 1: we're all competing with one another for the finite supply
36:38
Speaker 1: of those things, which means that people selling them things
36:42
Speaker 1: to just supply and demand. Basically, you know capitalism and economics,
36:46
Speaker 1: Those prices rise, that's inflation. That's the demand pole theory,
36:52
Speaker 1: that's right. The other is cost push uh And this
36:56
Speaker 1: is basically kind of the opposite of that in some ways.
36:59
Speaker 1: It's the cost of doing business is going up. Uh.
37:03
Speaker 1: It is sort of separated from demand in that way. Uh.
37:07
Speaker 1: And they're they're all kinds of reasons this might happen.
37:09
Speaker 1: Dave mentioned a couple that like labor unions might have
37:13
Speaker 1: um like have to pay people a lot more money
37:16
Speaker 1: because they negotiated a new contract or something. Um. Exporting
37:20
Speaker 1: foreign goods shoots through the roof or something, or maybe
37:23
Speaker 1: there's a new administration all of a sudden, there's new
37:26
Speaker 1: taxes going on. But basically it's cost push because the
37:31
Speaker 1: rise in cost of doing that business, any business, is
37:34
Speaker 1: going to push the price of the products higher and
37:36
Speaker 1: higher and higher. Right. But it has nothing to do
37:38
Speaker 1: with demand necessarily. It's just no, it's become the cost
37:42
Speaker 1: of doing business has become more expensive. Right. And now
37:45
Speaker 1: this is where like I did pretty good with the
37:48
Speaker 1: stuff until interest rates affecting inflation because it seemed, I
37:55
Speaker 1: don't know, it just seems so uh rigged, and like
38:01
Speaker 1: I hate saying the word now, but that's the whole
38:04
Speaker 1: that's the whole thing. That's the entire point of what
38:07
Speaker 1: the Fed is doing. By raising that interest rate by
38:10
Speaker 1: half of a percent, they're trying to manipulate the economy
38:14
Speaker 1: and they're trying to do it in just the right
38:16
Speaker 1: way so that they can keep those inflation, keep inflation,
38:20
Speaker 1: slow it down, they can keep it in check. But
38:23
Speaker 1: at the same time, they don't want to bring prices
38:26
Speaker 1: down so much that businesses have less incentive to produce goods,
38:30
Speaker 1: right because right now, with prices really high, businesses are
38:33
Speaker 1: doing everything they can to get out as many widges
38:36
Speaker 1: as possible because they can sell them for historically high
38:39
Speaker 1: prices right now. If prices fall, eventually you get to
38:43
Speaker 1: a point where businesses are like, it's not really worth
38:46
Speaker 1: the investment. I I don't need this many people to
38:49
Speaker 1: make this many whiges anymore. People start laying people off,
38:52
Speaker 1: so unemployment starts to go up, and all of a sudden,
38:55
Speaker 1: you've overstepped. You've cooled the economy too much by adjusting,
39:00
Speaker 1: by targeting inflation, by adjusting the interest rate. That's the
39:04
Speaker 1: precarious position that they're in right now. They're trying to
39:06
Speaker 1: create that soft landing to get prices back down to
39:09
Speaker 1: a normal rate of inflation without cooling off the economy inadvertently.
39:15
Speaker 1: That's right. And uh, what I'm meant to look up
39:18
Speaker 1: to see is it always by quarters of a point? No?
39:22
Speaker 1: I mean they just did a half of a point No? No, no,
39:24
Speaker 1: But but that's too quote. Yeah, is there any an
39:28
Speaker 1: increment that's less than not that I've ever seen? Okay,
39:31
Speaker 1: so they go a quarter at a time, I feel
39:33
Speaker 1: like three quarters yeah, yeah, I think the most I
39:36
Speaker 1: saw was one point seven five or something like that,
39:39
Speaker 1: and that was back in two thousand, two thousand, I think,
39:45
Speaker 1: so the last time they had such a huge hike
39:48
Speaker 1: um as a as a half of a percent, it
39:50
Speaker 1: was actually like two and three quarters of a percent
39:53
Speaker 1: because I think of the dot com bubble, and they
39:55
Speaker 1: probably overstepped because there's a recession after that, right and
40:00
Speaker 1: in the housing uh situation. Yeah, that came later, right,
40:05
Speaker 1: but that was I'm sure all of that has affected
40:06
Speaker 1: all the tendrils effect one another. I'm sure. I think
40:11
Speaker 1: there was somebody who had a theory that every recession
40:14
Speaker 1: was connected to the last one somehow. Well, they say
40:17
Speaker 1: we're headed for one uh. Since the nineteen fifties. Um,
40:21
Speaker 1: there are economists that say every time we've exceeded four
40:25
Speaker 1: percent inflation unemployment was below five percent, then recession comes
40:30
Speaker 1: within two years of that moment, and that has happened
40:33
Speaker 1: here in April two, right, So they're they're saying, like
40:37
Speaker 1: recession is probably becoming historically speaking, Yeah, and so there's
40:41
Speaker 1: some tips if you want to prepare for recession. It's
40:43
Speaker 1: not necessarily the end of the world. Um. One thing
40:46
Speaker 1: is because job market is so hot right now. If
40:49
Speaker 1: you've been sitting there thinking like maybe I'll get a job.
40:51
Speaker 1: Go get a job now, so you don't have to
40:53
Speaker 1: like try to get a job during a recession and
40:55
Speaker 1: you can already have the job. Um, if you're thinking
40:58
Speaker 1: of selling your house, especially if you can downsize, this
41:02
Speaker 1: is a good time to sell because the housing market
41:05
Speaker 1: is really high right now, but you can expect it
41:07
Speaker 1: to come down if we go into a recession. Right,
41:10
Speaker 1: Set a little cash aside if you can sure. And
41:12
Speaker 1: then if you're an investor, if you have stocks sticks
41:15
Speaker 1: your plan, don't panic, don't worry, just stay the course.
41:20
Speaker 1: You can weather a recession in your stock prices will
41:23
Speaker 1: eventually go back up on the other side. Yeah, you
41:26
Speaker 1: know what, there was one thing I meant to mention
41:27
Speaker 1: before that's worth pointing out real quick. Is that remember
41:31
Speaker 1: we were talking about the Fed sets this rate that
41:34
Speaker 1: banks you know they lend each other money and stuff
41:37
Speaker 1: federal something federal funds. Right. Yeah, they don't actually say
41:41
Speaker 1: like you have to use this rate. Like banks still
41:43
Speaker 1: negotiate that with with each other, but they're they're saying,
41:46
Speaker 1: like that's the target rate, and then they do things
41:49
Speaker 1: to try and nudge these banks toward that, right, Right,
41:51
Speaker 1: And that's what they're doing when they're buying or selling
41:53
Speaker 1: bonds on the market, they're injecting or removing cash to
41:59
Speaker 1: make that the bank's actually charged closer to that target rate.
42:03
Speaker 1: They've said that's how they manipulate. But it's not like
42:06
Speaker 1: a bank says, well, we can only turn to this
42:08
Speaker 1: because the FED said, So that's what I'm saying. It'd
42:10
Speaker 1: be so much easier and so much more straightforward. The
42:12
Speaker 1: Fed said, this is what you can charge each other
42:14
Speaker 1: for the overnight rate and then adjust that rather than
42:17
Speaker 1: setting a target and then manipulating the markets. Yeah, but
42:20
Speaker 1: then that takes a negotiation out of the deal, and
42:23
Speaker 1: like it's just no fun. Yeah, it's probably it. Actually,
42:28
Speaker 1: you got anything else? I got nothing else? Well, that
42:30
Speaker 1: was a good first take. Let's start over and try
42:32
Speaker 1: it again. Well, since Chuck's made that sound, of course,
42:37
Speaker 1: that means it's time for a listener mate. I'm gonna
42:41
Speaker 1: call this uh new gin and tonic recipe I want
42:44
Speaker 1: to try. Yeah, it sounds good. That just came in.
42:47
Speaker 1: Hey guys, been listening for you years down end and
42:50
Speaker 1: was keen to learn about more about Champagne. As a
42:54
Speaker 1: fan of the Bubbly beverage but I got an extra
42:56
Speaker 1: treat when he went on a tangent about gin. Uh.
43:00
Speaker 1: This must have been a select champage. Yeah, Sampaigne one
43:02
Speaker 1: came out this past Saturday. Yeah, in real life, I
43:05
Speaker 1: r l so. Although I must say the best gin
43:08
Speaker 1: in the world now comes from Australia, arguably Tasmania. I'm
43:11
Speaker 1: also a big fan of the Saint George share war
43:13
Speaker 1: and chuck. It does not taste like feet. Maybe you
43:15
Speaker 1: should stop soaking your socks, your lime in your socks.
43:19
Speaker 1: So this is a cocktail recipe I'm going to try
43:22
Speaker 1: because it all sounds lovely. This is from Meg. Just
43:25
Speaker 1: get your basic London dry gin and tonic, but instead
43:29
Speaker 1: of just squirting a line in there, um, squeeze some
43:32
Speaker 1: orange in there and add a full rind and then uh,
43:37
Speaker 1: rub of fresh rosemary stick. Get that thing activated and
43:41
Speaker 1: then put that in there and stirred around. You sound
43:43
Speaker 1: like you're making this listener mail up. No, no no, no,
43:46
Speaker 1: and then uh and cracked pepper. So you basically got
43:49
Speaker 1: a gin and tonic with orange, rosemary and black pepper. Yeah,
43:53
Speaker 1: be careful with the pepper though I've had it before
43:56
Speaker 1: with even just not cracked, but whole peppercorns. You can
43:59
Speaker 1: act sidentally bring your throat pretty good, Yeah, because the
44:03
Speaker 1: gin like gets it ready and the black pepper finishes
44:06
Speaker 1: the job. Okay, well I'm gonna try it out. That's
44:08
Speaker 1: from Meg and Australia. Just remember a little goes a
44:12
Speaker 1: long way. A little goes a long way. Thanks a lot, Meg,
44:15
Speaker 1: we appreciate that. Um we love new gin recipes. Really,
44:19
Speaker 1: any kind of recipe. Yeah, if you want to get
44:22
Speaker 1: in touch with us like Meg did and give us
44:24
Speaker 1: a recipe or just say hi or whatever, you can
44:26
Speaker 1: send us an email to Stuff podcast at iHeart radio
44:29
Speaker 1: dot com. Stuff you Should Know is a production of
44:34
Speaker 1: iHeart Radio. For more podcasts my heart Radio, visit the
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44:41
Speaker 1: to your favorite shows.