20 August 2007

Something funny in the Fed rate



Although the US Federal Reserve lowered the discount rate on Friday in response to current market conditions, from 6.25% to 5.75%, it has so far left the Fed Funds target rate unchanged at 5.25%. (For an explanation of the relationship between the two rates, see Wikipedia.)

However, via Brad DeLong, Felix Salmon and William Polley, I come across this interesting chart showing the daily high, low and average of the actual Fed Funds rate (i.e. the rate at which banks lend their reserves with the Fed to each other). I'm not sure how to interpret it, but it certainly looks odd. William Polley's explanation is worth reading. Although the chart only goes as far as last Tuesday, the situation has not changed much since.

At first sight, it looks as if monetary conditions are a lot looser right now than they seem.

4 comments:

The Prince of Truth said...

that's what happens when you have private bankers and NOT the government printing and controlling the currency of an entire nation to turn around and LOAN it to the government with INTEREST.

Ignotum Per Ignotius said...

...'Twouldn't matter were it the government themselves cranking out the boodle: flooding a country with helicopter money is no substitute for genuine productivity.

By the way, Fabian, given its title, I imagine this will be up your strasse...

Mitchell said...

And today we have the four largest US banks using the discount window; but supposedly just to encourage others to do so! How absurd. I hope you have a strategy for doing well during a US downturn.

The Prince of Truth said...

ignotum per ignotius,

you're laughably ignorant about the history of the federal reserve, which is nothing but secret criminality. It DOES matter if the government made its own money, because then it would be INTEREST FREE. Not only that, private bankers WANT to use gold as the standard because there's so little of it!! Which makes it easy for them to exploit and control it. We've arbitrarily given nothing but a piece of rock, high value, purely out of tradition.