Banking 14: Fed Funds Rate
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- čas přidán 8. 11. 2008
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How open market operations effect the rate at which banks lend to each other overnight.
More free lessons at: www.khanacademy.org/video?v=In...
it makes me angry how smart he is. like whenever I need help in school, he has a video for it. why are you so well rounded?? like chem, calc, physics, trig, now econ too?? it's the same voice in all the videos too! im so jealous!
Yep, this guy knows everything. He might be Jesus..
@@paycation3966 - It's just a myth that this guy knows everything....
But, then again - 'Jesus' is a myth too. Sooooo, there's that.
Tbh there are far better videos for each of those topics made by individual (amateur) tutors. I used to teach math (and before that I used to learn math) and I don't think he does as great a job as he gets credit for. I think he's mainly popular because of his variety of topics. That variety has created a brand name for him. "Khan Academy" sounds very catchy.
@@shushantoYes, I'm very impressed by the 0 videos on your channel
The last part of the video.. I got so excited because i finally understood how the fed can target a certain ffr... threw my hands in the air and yelled "I GET IT!!!!" hahaha thank you Khan Academy for helping me become a successful student (:
+Travis Desjardins SAME HERE!
What class are you in? Are you at high school or college or what?
This guy really knows everything huh
I mainly use Wikipedia and the Federal Reserve Website to double-check my understanding from myexperience/education. I do plan on going over many of the current bank rescue schemes shortly (I want to make sure that the basics are out there)
The only mistake in this example is when the Fed creates $$, it is not an asset. They simply credit the Treasury account at the Fed (which is a liability) , and receive a T Bill for it, (Which is the asset). The asset is the T Bill, not the newly created $$. The newly created $$ is an asset of the Treasury, and the liability of the treasury is the T Bill itself.
got the whole concept at the last part of the video..thnx this will help with my finals..
The private member banks get a 6% dividend on the equity capital (about $20b) that they contributed to the Fed. Since they (historically) get no interest on reserve deposits (about $800b), the member banks don't make out too well from a yield point-of view ($1.2b/year on 820b with the fed). After this 6% is paid and the expenses of the Fed are paid, the rest of the money is returned to the treasury. Though it is officially private, the Fed is "owned" more by the government than by its members.
Lucidly explained, Please keep up the good work!
What a great explanation, thanks 👍
I would LOVE to see a Khan Academy remake of Banking and money for 2022+ 😀
Why is cash printed by the central bank noted as "notes outstanding" in its passiva?
Amazing explanation !
@khanacademy
I notice when you drew green box representing the funds newly printed assets. Where does this balance out on the national budget? Where is the gold, or the goods to represent that currency? It seems to me that printing money just makes money less valuable in the long run.
great video - thank you!
Great video but, it is a bit dated with regards to no interest on reserves. Maybe a text box would be appropriate to note such a change?
Sal explained that banks want a central repository for their reserves because that lets them go a little under the reserve that they would normally have to keep. It basically smooths out any spikes in usage.
The Fed is semi-independent. Look more closely at what you quoted. It says that in one sense (and one sense only), the Fed is independent: its monetary policies don't have to be pre-approved.
There's still a lot of regulation, though.
@yrebrac I hope that makes sense. I had a tough time trying to explain that through text.
The fed now pays interest on bank excess reserves they hold right?
Khan would u like to please explain to the fed chairmen that fed controlled short term rates are not a pro for capital markets. Also that interest rates should be determined by free markets and fed policy.
This is the statement from today FOMC "The Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation."
They increased the percentage from 1/4 to 1/2. So this mean FED have increased the lending rates between banks. So this means they cut the supply by increasing reserve rate. Let me know if I am wrong
@yrebrac The only thing he did differently in this video compared to other videos is that he drew the reserves below what he previously had. If you could imagine him drawing it on top, he would've initially drawn it as a liablity, which makes you correct, but then he wouldve had to balance it out with the extra reserves. He simply skipped this step by drawing it below in on the assets side.
you're fantastic! thanks so much!
Thanks for the video! I thought that open market operations are CB buying from private banking system, so simply asset swap. So the grand mother comment wouldn’t apply?
There is one thing I don't understand. A interbank loan is just another liability. Both sides of the balance should expand, shouldn't they?
i dont understand how when the banks buy treasuries through open market operations how does it end up in the checking account of the grandmother
lol the grandmas part xD !!!!!!!! good shit
why would a bank lowers its reserve requirement or ratio what's the benefit? if that bank gets more reserve for example it'll get higher account deposit 10% requirement of the central bank .what's the RR of the other bank?
Thank you so much this helped a loy
How does open market purchases affect federal fund rate
You mentioned that any surplus' after paying its fees would go back to congress. Is that correct? I was under the impression that the federal reserve was a private corporation that could function without regulation as it saw fit. You're saying that assets that they hold which produce income pay their bills and any additional monetary gain beyond that goes to congress?
u said previously in early lesson money gets expensive and interest gets higher could u explain it sir plz?
good question. Let's say that I have $95 in reserves and $1000 in checking accounts outstanding (so a 9.5% reserve ratio). I want to be at 10% so if I take in another $50 in reserves and also increase my liabilities by $50, my reserve ratio is now (95+50)/(1000+50) = 13%. I could get those reserves from taking them as deposits or borrowing from another bank (could view it as the other bank making a checking out deposit to get interest on their excess reserves).
Well update needed Fed does pay interest on reserves now and there no reserve requirement
can anybody please explain my following doubt? At 7:59, he said that fed prints the notes and that has an offsetting liabilities. Who does the fed owe those liabilities to?
Manvendra Singh to the treasury department, because technically the treasury is the one who prints the notes not the fed res, then the treasury transfers the new money in form of treasuries owed to them, the fed res issues credits to banks based on this transaction ...
If the bank borrows money to comply to it's reserve requirement, doesn't is also create another liability?
Superb
doesn't the FED pay dividends to its shareholders? Does all the FED treasuries income really go to the congress?
The Fed is privately owned.
100% of its shareholders are private banks.
There is a guaranteed 6% return to the banker shareholders. These stocks are different to private equity stocks and may not be sold or traded.
The banks also get interest from the taxpayers on their "reserves" held at the FED.
Taxpayers will be paying annual interest to the banks on at least $700 billion held in reserves.
Banks retain these reserves to accumulate interest and then lend on ten times that sum in loans
Anyone knows a video after the fall of 2008 when the FED started paying interest on reserves explaining this concept?
@@shanecormier2287 LOL I heard the same thing and immediately checked the date.
I see now what you are getting at. The fed adjusts the interest rate by printing money, which the central bank gets treasury notes for, to allow banks to make loans to each other, which allows them to do more business. So if the government wants money for all these bailouts, won't that affect the bond market?
Fed gets interests on money just printing them??? if Fed is own by the government ok, if Fed is privat...they are a tipografy and get interest on the nominal value of their prints...right?
@khanacademy
Where did all the other assets of the banks go? They got nothing but cash?
Money hungry banks don't provide their employees with even desks =(.
Also I assume that the black box is lent reserves - this was really confusing IMO.
BTW Bernanke is now saying that he could even pay for reserves to control inflation. There was an article about this at mises.com (be wary - lot of bad articles there also).
Congratz on being Peter Schiff show finally. We need more banking videos =).
u need to do some research on the banking system
so when the FED sell treasuries to China, it won't affect the target rate for US since it is Chinese that are holding the treasuries. if the fed sells treasuies to US customers only, then it would cause a raise in the fed fund interest rate?
Excellent video. This is all just simple accounting (read, can not be wrong) along with basic supply demand analysis.
I understand most of the video except the part where Sal explains that the government would print money and buy "grandmas" debt in order to bring the interest rate to the projected level. My issue is..from my previous economic classes doesn't printing money cause inflation?
Welcome to 2022 Horacio
3:40....Yes, I am curious how the F*ck these shenanigans are really what backs our system. :D
If you want a good basic rundown of why the system is unsustainable, there is a good presentation at chrismartensen . com. Its a series of power point presentations with him talking, but its very informative. The banking and debt information especially. He's a retired fortune 50 VP who sold his house and got out of the market 2 years ago because he realizes what happens in the boom/bust cycle created by the Fed. I have followed his advice for the last 2 years, and have done well in this market.
Balance Sheet Approach of explaining bank activities is very smart. The presentation is very very boring which makes it very stressfull
you're correct, he believes that the FRS creates productivity and stimulates the economy through growth in the money supply. The fallacy that he doesn't assess in these videos is that the FRS is not sustainable. It helps to create a boom/bust economy, and eventually bleeds economies dry because the banks are the leaches, sucking the lifeblood out of the system.
@khanacademy It sound like it runs perfectly, but can you explain why America is going down the tubes along with the UK, while the poor pay the price through Welfare reductions and service cuts?
Would be nice to see an updated version of this…………..without the Microsoft Paint.
Update would be nice but I say keep MS Paint!
so why doesn't the government just make more prints and buy the treasury bonds to make it to where the economy is at 0%
Also so essentially, private banking system will always make the loan should they be able to make a profit with reasonable risk. So my conducting asset swap via open market operations, the CB is able to influence the cost of borrowing? The only way to increase money supply in the public sector is to influence actual demand for loans by Consumers and corporations. Therefore, loose monetary conditions would be either accommodate monetary policy or accommodative quantitative easing; this is done by the CB creating reserves from thin air and conducting asset swaps with private sector. Because demand for reserves drops from private FIs, the over night interest rate drops. Typically prime rates are heavily influenced by over night. Therefore, the CB, can potentially influence demand for loans? Interesting because Japan has been accommodative since 2001 and have seen 0 inflation, so maybe monetary policy has very little power to create growth in public money supply or demand. Maybe it’s ultimates public perception of value in taking out loans or trust in their government
ok, but what's the fed funds rate? Anybody have a simpler definition?
That's it. The interest rate charged on loans between banks.
The Fed began paying interest on reserves in 2008.
Do you have a Fed doc to support this? Would be interested to see it!
why can fed lend to banks print debt free dollars.
they didn't give treasury money, they BOUGHT treasury notes on the open market
If they buy Chinese treasuries, doens’t that just increase the reserve of the Chinese banks ?
I think he meant US treasuries owned by the Chinese government
What is the European Equivalent?
ECB
End the privately owned federal reserve bank! The US government should make its own money not borrow it from a private banking cartel.
Who’s here cuz the rate is 0 now?
Wot
im butthurt
i have yet to hear you make an intelligent comment. I don't think you know a thing about banking. Follow along with the rest of the sheeple then.
Is it just me or does he sound drunk?
i dont think u have any idea of what u talking about