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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: NOW who wrote (24267)	1/9/2005 12:28:12 AM
From: Elroy Jetson	Read Replies (1) \| Respond to of 110194

Yes, I'm sure about that. Let's say the Fed makes a pronouncement of higher rates, "today the rates shall rise to 14%". On what basis will this command be carried out? Without restricting the growth of the money supply, then there will be far too much money than can be lent out at 14%. Banks might offer 2% interest and receive many fold more money on deposit than they can lend at 14%. The surplus money will have to be lent at a lower rate. Can the banks legally lend at a lower rate? Yes. The Fed's command covers short-term rates for FDIC banks. They can lend you short-term money at 14% but can also lend you a 30 year mortgage at 5% or a 2 year loan at 6%. This is called an inverted yield curve. It is associated with impending recessions. Why? Because it means the Fed is setting a market rate above the natural market interest rate. Additionally, non-FDIC lenders can lend you some of the surplus money at 5%, even though the official rate is 14%. This highlights the reality behind the Fed's impotent announcements. The only real method the Fed has to raise interest rates is to reduce the growth of the money supply. If the money supply continues to grow without restraint, then their profound announcements that they are raising rates is just a bucket of lies. .