Wednesday, December 17, 2008

And We'll Have Funds, Funds, Funds........

Thus far my blogging style has tended toward the long form post and I have tried to include a healthy dose of my own style and opinion, not to do so would seem to negate the reason for having a blog in the first place.

In reality, there are a lot of blogs out there in which the entries consist almost entirely of quotations of news articles or posts from other blogs garnished with an original sentence or two. But like the eerily green parsley served along side every every cut or chop at your local steakhouse, these appended thoughts are rarely digested, if even considered at all.

I note this here, of course, because this post is a plate of parsley. Though hopefully with a slight steak garnish.

The news yesterday included the banner headline noting that the Federal Reserve lowered their target interest rate to a range of 0-.25%. Ever wonder what exactly this means? Read this post over at

Remember, the interest rate that is always covered in the news is the federal funds Rate. This is the rate banks charge each other on very short term loans. Since this is a rate determined between banks, the Fed doesn't actually set this rate, they set a target. They try to hit that target through open market operations. Just read the (6) short paragraphs under the heading "How the Fed "Sets" Interest Rates". Then go out and impress your friends with your knowledge of the innermost workings of our Central Bank.

I'm reasonably sure that Ron Paul doesn't read this blog, but trust me, if he did he would click on the link and read the article.

For those of you with stronger constitutions, I urge you to continue on through the next heading, "Austrian Business Cycle Theory". You see, is the website of an institute dedicated to Austrian School Economics. And no, the Austrian School is not where Arnold Schwarzenegger matriculated.

With the Fed Funds rate at zero, you will begin to hear how we have run out of monetary policy tools to repair our economy. The next line of defense will be the massive spending prescribed by the Keynesian economists, who seem to be quite literally coming out of the woodwork these days. If a year or eighteen months from now nothing has changed or things have actually gotten worse, we may have to turn to the prescriptions advocated by the Austrians.

So think of this as the opportunity to get in on the ground floor of what could be the next hot economic school of thought! So bone up on your Alpine geography, don your lederhosen, and pass the schnitzel, we just might have a group of Austrians to rival the Von Trapps. Just remember you heard it here first.

1 comment:

Steve said...

The more I read about banking operations (and your blogs are very instructive in this) the more I lean toward good ole Ezra Pound's opinion that banks are not only unnecessary (i.e.,the State should be he sole source of funds to be loaned)but by the fact that they are by their nature usurious. A strong State is one that controls money supply, not a group of greedy money-changers that do not contribute to the over-all economy themselves. I know this sounds simplistic when compared to the machinations of the Federal Reserve's arcane "policies" that, to my thinkin, invite all kinds of opportunity for graft and Ponzi schemes. This may sound un-American, but be it so if it keeps our country strong and vibrant. A little Mussoliniana
may be what we need.