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Temperature_Foreign OP t1_jdx42a3 wrote

Reply to comment by xmustangxx in The economy in 2023 for dummies by Temperature_Foreign

explain to me what I am missing

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xmustangxx t1_jdx8w7j wrote

I wouldn’t know where to start. “Banks whole business is borrowing money”? Wtf? Banks are in the business of lending money. You’re really blurring the lines between govt and banks. “The government needs to pay higher rates to borrow money”? Where? In the US where there was still demand for treasury bonds at negative rates? “The government is printing money to help banks”?? No M2 has been shrinking and the funds within the fdic has bailed out depositors. The whole thing is a confusing jumble of misinformation. If you turned this in as a high school Econ project I would give you an F.

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TimujinTheTrader t1_jdx9gcq wrote

The amount of idiotic posts trying to explain shit about economics incorrectly is too damn high.

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[deleted] t1_jdxwv2t wrote

M2 shrinking is very interesting… and deflationary.

Buy buy buy!!!

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Temperature_Foreign OP t1_jdxg899 wrote

Ok, banks get loans from the government, they then loan money to customers. The rates they loan to customers is determined by the rates at which they loan from the government. If the government loans banks money at 5%, the banks have to loan money to people at higher than 5%.

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In order for the government to raise money, they need to make bonds attractive assets. This depends on the current economic situation. In some cases, negative bond yields are attractive to investors. However, in the current economic situation, nobody wants to hold debt, and therefore, nobody wants to buy bonds. The government must raise bond yields to make them attractive at this current moment. It is not a static thing.

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Finally, M2 will increase as the government will have to print money to help pay for the debt that is coming up. I said the government will print money, not that they are right now.

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xmustangxx t1_jdxprsb wrote

Omg you just keep going with nonsense. I want you to go to a balance sheet for JPM or BAC etc and tell me exactly how much they’ve “borrowed” from the government to in turn lend. Do you think the fed funds rate is a rate the fed lends money at? 😂 so confused. That is the rate banks charge each other for overnight lending if needed. Are you talking about the discount window? That is a “lender of last resort” and banks know there’s a stigma around using it. Just repeating your misinformation doesn’t make it any less false. Stop. Go actually learn this stuff. Stop posting until then

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tjonesmachine93 t1_jdxyj84 wrote

In fairness to OP and in gratefulness to all here, he’s learning more by posting this than most people will stirring though 2-3 college econ classes.

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[deleted] t1_jdxxabo wrote

It’s interesting that of all the things you were irked by, the “printing” of cash theme wasn’t one. There’s no “printing.” That’s one of the really really frustrating misconceptions that I guess bothers me more than anyone else.

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TrumpMeister99 t1_jdzinbl wrote

Please don’t bother with these people. If you try to explain what CoCos are they’ll be thinking cereal

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Temperature_Foreign OP t1_jdy00g2 wrote

Whatever G. The point remains that higher interest rates means higher rates the banks have to charge. You are essentially nitpicking instead of focusing on the greater point

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xmustangxx t1_jdy3w1f wrote

Stop again. Go google “how do banks make money”. You need to learn about what the spread is and it has nothing to do with butter or your moms legs

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Explod3 t1_je14qaw wrote

Not always the case. Rising interest rates typically help banks due to increasing margin. “Rapidly” rising interest rates hurt everyone. Please read more.

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TrumpMeister99 t1_je07rkq wrote

Just an fyi, it has nothing to do with being attractive or unattractive. “Da government” is raising interest rates to curb inflation, doing so will inadvertently affect the US treasury’s cost of borrowing, but that is only one side-affect. The cost of interbank borrowing will rise due to higher fed funds rate (which is the main intended effect), banks will ultimately pass that on to their customers (many of the loans they lend out are tied directly or indirectly to fed funds) which further disincentivizes customer borrowing (credit cards, commercial loans, mortgages, etc).

This is obviously a very high-level overview and the actual mechanics are far more complicated, but if you pay attention to the Fed’s dual mandate (full employment and price stability as a reminder), every policy decision can essentially be boiled down to that

Banks will continue to earn money on the difference between their own borrowing rates (from other banks or depositors) and the money they earn on loans and now higher-yielding government debt.

We obviously won’t talk about the numerous issues that can come up because of this but that is basically how it’s “supposed” to work

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_huppenzuppen t1_jdylj1b wrote

> In order to raise money by selling bonds, the government has to make bonds an attractive asset. That is, the bonds have to be a good investment, and provide good returns to those who buy the bonds.

> This means that the federal reserve must raise the interest rate, because that determines the yield of bonds.

That's just plain wrong. The yield of a bond is determined by supply and demand of this very bond, it does not depend on the interest rates from the fed. If no one wants to buy this bank's bonds at 1%, they have to raise the interest of it. There were quite a few high yield bonds even before the rate hike.

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