How the Fed Causes the Business Cycle.

Discussion in 'Economics' started by Sammysouth, Oct 24, 2011.

  1. In a free market, interest rates are set by supply and demand. If there are a large numbers of savers, the banks adjust their rate paid to lenders down and as a result can offer rates to borrowers at a low level. If there is a relative reluctance to save, banks will try to attract lenders by offering a higher interest rate. The higher rate forces banks to charge a correspondingly high rate of interest to borrowers.

    The free market balances the supply and demand for the desire to hold the money. The meeting point is the natural interest rate. The banks don't care what the rate is. They make money on the relatively narrow spread between the lending and borrowing rates. Their real profit comes from lending more money then they take in through the magic of fraction reserve money creation.

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  2. Total CRAPOLA! The Fed has indeed "caused" the business cycle... but not for the reasons stated.

    The Fed is in it to "promote inflation"... and to reap the benefits for doing so... nothing else is more important than that to them.
  3. maler


    Mission accomplished.
  4. Eight


    The business cycle follows solar cycles. Raising any bankers to such godlike status as "causing business cycles" is bunk, they are caught up in the same cycles as the rest of us.