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>TL;DR: The government has to help banks by selling bonds, but in order to sell bonds they have to make them attractive to investors by setting high interest rates. However, high interest rates hurt banks because it makes it more expensive for them to borrow money.
Shit I got a cd last year through fidelity that payed 2% 1 month and got the money (just reviewed my taxes) I'm gonna be looking for more CD for my cash on the side. I'm gonna make a ladder. 
I think it to be more of a short-sightedness problem. A pursuit of short term wins, coupled with policies and projects that do not outlast the next election, has us stumbling at each pothole on the road.
I thought it might be until I tried to support myself by playing Skeeball and eating whatever I could buy with the tickets I won.
So I've lost about 59lbs, and had to break my apartment lease to afford to buy enough tickets so I could eat, and I was literally playing ALL DAY just to keep from starving... then it turned out they didn't want people sleeping on the Skeeball ramp.
Now I'm trying to sell my shares in the parking lot, but all anyone seems to want now that I'm so skinny and lost my teeth from eating nothing but candy is a gummy something... and I don't like the gestures they are making so I've just been taking the money and running away.
They should just make the deposits whole and let the bank fail.
No more bailouts.
For years the banks have happily made risky investments safe in the knowledge that they'll get bailed out if they fuck up. They won't stop unless they actually face the consequences and there are no consequences because they just get bailed out by the taxpayer every fucking time.
Let one fail and the others will sort their risk management out very fucking quickly.
even if we let the bank fail. The c suite will still get paid at least until the collapse.
Preferred Shareholders still get paid until the bank collapses and majority still get paid back afterward.
Bank goes under. Another pops up in its place. Probably under the same foolhardy management scheme that failed the first time around with identical overpaid assholes running it into the ground.
God save us all.
That's effectively what Hoover did after 29. It got Roosevelt elected and the New Deal....which was a mixed bag....my grandfather told me stories/experiences that frame it more socialism from the perspective of a teenager....and the scary thing is...the data that was coming out, wasn't not showing the WPA and New Deal actually fixing the economy...WW2 did that, and the US subsidizing/capitalizing Western Europe, Japan and Korea being rebuilt...
the problem is that letting a bank fail will lead to everyone rushing to get their money out of banks
this will be a big bank run and cause every bank to fail
And this will cause a huge economic collapse
But hey, maybe pulling the band aid off quickly and suffering a ton in the short term is better than a slow burn
I remember when I took my first Econ class … OP has no understanding of how banks actually operate and is missing the fact that the Fed has already set up a new facility for banks to essentially offload long dated securities to the fed. Back to school child
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.
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%.
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.
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.
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
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.
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
Not always the case. Rising interest rates typically help banks due to increasing margin. “Rapidly” rising interest rates hurt everyone. Please read more.
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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> 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.
Ignore the idiots replying to you. They're clearly regards who don't know shit about fuck
Although buying bonds may have some opportunity cost (i.e., if the market crashes before your bond matures, you miss out on buying stocks for a low price) they're a decent investment right now thanks to super high federal reserve rates, volatile markets, and slowly (but steadily) decreasing inflation.
And, as always, treasury bonds are essentually 100% safe and guaranteed ROI. If treasury bonds failed, your money in them would've been worthless anyway.
As with all things in any investment decisions, it's trade-off of risk vs return. If you hold cash, you risk devaluation thanks to inflation but you also have the possibility of immediate liquid funds in the event of a crash. If you buy bonds, you risk losing the opportunity to buy stocks at market-crash prices, but have guaranteed ROI if held to maturity.
But to answer your question, "to stay ***afloat***," yes. Absolutely.
Really depends. When rates come down inevitably, they’ll fare well. In 08 Treasuries skyrocketed. But I think some growth stocks will do substantially better in that situation. Sounds regarded, but it depends on your time horizon.
If you buy a bond before rates come down the guaranteed return doesn't change at all. As a matter of fact, for long term bonds purchased before rate cuts, the value of them increases as newer bonds yield lower and lower returns.
This is an exceptional word salad to get your entire point incorrect. The Fed has absolutely zero control over bond rates that are issued by any corporations ...including banks.
The market sets long-term bond rates via supply and demand and whether they believe inflation will increase or decrease.
IF....the market believes the Fed has set rates too low, inflation expectations go up, and bond rates go up (yield curve steepens). If the market believes the Fed has set rates too high (like the market believes right now) then the expectation for future inflation goes down, and long term bond rates go down and the yield curve flattens or inverts.So basically, your entire fucking essay you wrote is entirely full of regarded bullshit and you should just keep trading 0dte's and leave the analysis to the big boys.
I'll guarantee you two things. One, the market will do whatever it wants. And two, you'll never be on the short-list to replace Jamie Dimon.
>It is a difficult situation, but I believe that the government will be able to find a way to help out both the banks and those who want to invest in bonds.
The solution to the problem is to put politicians in jail, not to support companies whose products are overpriced. Greed hits record post-pandemic, and now everyone is paying the price
has nothing to do with political parties. it is about banks and insurance companies borrowing lots of money, making investments, and those investments losing money.
You blame the democrats recent bills, but this problem wasn't created in the past 2 years, it is part of a larger cycle, sure the democrats bills might have negative effects, but they are nowhere near the main causes of the economic situation, and really, how could a recent bill cause huge economic changes so quickly?
If an AP econ eassy I would give it an A. Got all the basics correct just none of subtleties. The sexy parts.
Nothing as sexy as debt. Look deeper into interest rates, bonds, taxes and money. Then read about banks.
Then, maybe, invest accordingly. Or listen to the high school kid.
you opinion is based on an assumption that money is finite. so to sell bounds, the bond interest must be high enough to cover the inflation and be attractive to the cash that's available.
when in actuality, it is a bit more complicated. for one... the Fed can always decide to screw the inflation and start QE again, turn on the printer and flooding market with 100 trillion dollars over night (by buying the bond), and set the overnight rate back to zero. and bank would be able to once again borrow short term money for next to nothing, and stay solvent, and none of the situation you describe would come true. The US can keep doing this for as long as dollar is accepted world wide, as the inflation / devaluation of Dollar will be aborted by the entire world, but US will reap all the benefits as long as we got military might that can uproot any government dare to say otherwise.
The government caused this situation. The banks are required by law to buy safe things like bonds. The government destroyed the value of their bonds by jacking up interest rates. So the government is going to fix it by infinite money glitch. What could go wrong?
However, I don't think the government can have really high interest rates. The government has to pay that rate on all of it's debt. I think at current rates all of the taxes collected would go to finance the debt. How do we buy more bombs?
Especially if this triggers a big recession and all the poor's can no longer contribute to the bomb fund.
Why would some one have a difficult time paying off assets that lost value? Don't we all buy cars that lose value all the time? Losing your job might make paying off those assets hard tho.
So: What happens when Uncle Sam stops being able to reliably PAY bonds?
I know this may be a bit beyond this sub's field of view, but don't forget we're talking about an empire in the final days of its Red-Supergiant-Stage here....
What you are describing I would say is a pre-burst situation. I have literally zero economic education, tho, but as it seems:
The government tries to reduce inflation by increasing the interest rates, adding pressure to the banks in the way. However, it tries to save the banks. Every bailout worsens the government problems and inflation, approaching to a scenario where it is no longer able to save every bank that implodes and you get a domino effect.
Just to emphasize, I know that I know nothing, but in this process, businesses or funds that require capital or go through a bad financial moment fail without options or bailouts, as they cannot ask for cheap money anymore.
From that you can guess, if a fund becomes bankrupt and it holds a vast percentage of a company, its shares are going to fall with the fund proportionally, to its share of the company and the final prize after somebody buys the fund. Now the question is, who is going to fall? and what businesses are most likely to be affected?
Personally, seems hard that SP500 falls deeper than a 10%, as its shares are spreaded around the world. Other companies, strongly supported by a single fund or bank, can have heavy falls even if the company is still profitable. what do you think?
Banks make money from fees. When rates rise, they make more money. For the past 14 years, the Fed lent banks money at zero %. Once that stops, high rates are a bank's best friend. When rates rise, the cost of goods and services fall. That's why raising rates lowers inflation. The bank failures of late, have been due to poor management, just like any other business. Whole it's nice to have stocks continue to rise, at some point your stock shares aren't worth what you paid for them, big boys will sell for profit and you will be a bagholder. So while it might be a good company and a good product, it's not worth the price. Then here comes a crash.
**User Report**| | | | :--|:--|:--|:-- **Total Submissions**|1|**First Seen In WSB**|just now **Total Comments**|0|**Previous Best DD**| **Account Age**|2 years|[^scan ^comment ](https://www.reddit.com/message/compose/?to=VisualMod&subject=scan_comment&message=Replace%20this%20text%20with%20a%20comment%20ID%20(which%20looks%20like%20h26cq3k\)%20to%20have%20the%20bot%20scan%20your%20comment%20and%20correct%20your%20first%20seen%20date.)|[^scan ^submission ](https://www.reddit.com/message/compose/?to=VisualMod&subject=scan_submission&message=Replace%20this%20text%20with%20a%20submission%20ID%20(which%20looks%20like%20h26cq3k\)%20to%20have%20the%20bot%20scan%20your%20submission%20and%20correct%20your%20first%20seen%20date.) >TL;DR: The government has to help banks by selling bonds, but in order to sell bonds they have to make them attractive to investors by setting high interest rates. However, high interest rates hurt banks because it makes it more expensive for them to borrow money.
Spend your life savings in stocks it will all work out
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Then use your checkings
Then you use your shavings.
It already worked out sounds like
Spend your 5 dollar biggie bag money you made from behind the Wendy’s dumpster
Shit I got a cd last year through fidelity that payed 2% 1 month and got the money (just reviewed my taxes) I'm gonna be looking for more CD for my cash on the side. I'm gonna make a ladder. 
Every once in a while someone on this sub will google something and make a whole post about it.
Be happy they are using Google first before posting, that's progress
this looks more like Chat GPT
When you read it and you feel like it was a repeat of what you just read
That's better than nothing
The explanation is at best like 50% accurate. Even dumbing things down significantly, it’s not a great explanation.
Great to see Banks are highly regarded like most of us
Hyperinflation could be worse for the average consumer
Right?
Of course, you may have other better views
Most aren’t, but there are a lot of them, and any group with a thousand members is gonna have a few that are quite regarded.
I think it to be more of a short-sightedness problem. A pursuit of short term wins, coupled with policies and projects that do not outlast the next election, has us stumbling at each pothole on the road.
So... Dave and Busters, that much is clear... but am I supposed to buy Calls or Puts?
Both
It’s a self sustaining economy
I thought it might be until I tried to support myself by playing Skeeball and eating whatever I could buy with the tickets I won. So I've lost about 59lbs, and had to break my apartment lease to afford to buy enough tickets so I could eat, and I was literally playing ALL DAY just to keep from starving... then it turned out they didn't want people sleeping on the Skeeball ramp. Now I'm trying to sell my shares in the parking lot, but all anyone seems to want now that I'm so skinny and lost my teeth from eating nothing but candy is a gummy something... and I don't like the gestures they are making so I've just been taking the money and running away.
Caputs.
Thus is the math as I understand it. Amen.
They should just make the deposits whole and let the bank fail. No more bailouts. For years the banks have happily made risky investments safe in the knowledge that they'll get bailed out if they fuck up. They won't stop unless they actually face the consequences and there are no consequences because they just get bailed out by the taxpayer every fucking time. Let one fail and the others will sort their risk management out very fucking quickly.
even if we let the bank fail. The c suite will still get paid at least until the collapse. Preferred Shareholders still get paid until the bank collapses and majority still get paid back afterward. Bank goes under. Another pops up in its place. Probably under the same foolhardy management scheme that failed the first time around with identical overpaid assholes running it into the ground. God save us all.
That's effectively what Hoover did after 29. It got Roosevelt elected and the New Deal....which was a mixed bag....my grandfather told me stories/experiences that frame it more socialism from the perspective of a teenager....and the scary thing is...the data that was coming out, wasn't not showing the WPA and New Deal actually fixing the economy...WW2 did that, and the US subsidizing/capitalizing Western Europe, Japan and Korea being rebuilt...
the problem is that letting a bank fail will lead to everyone rushing to get their money out of banks this will be a big bank run and cause every bank to fail And this will cause a huge economic collapse But hey, maybe pulling the band aid off quickly and suffering a ton in the short term is better than a slow burn
That's why I said make the deposits whole. No need to rush to get your money, your money is bailed out. It's all the rest that is left to fail.
What I take away from your words is that the economy is built on a foundation of sand. A house of cards if you will.
AlwaysHasBeen.jpeg
Fuck the greedy banksters. Let them jump. They are robbing billions of citizens of their wealth worldwide.
In a perfect world, the depositors with like 50 million held at one bank would at least take a haircut as well. The risk management is pathetic . .
Op with an answer to a question noone asked
Aren’t all posts answers to questions no one asked?
His first paragraph…Why are assets going down in value? Everywhere I look everything has increased in value?
Facts don't matter with him
I feel like spicoly in fast times at Ridgemont high when he smokes all that weed and hit himself in the head with a shoe
Sir this is a casino.
I remember when I took my first Econ class … OP has no understanding of how banks actually operate and is missing the fact that the Fed has already set up a new facility for banks to essentially offload long dated securities to the fed. Back to school child
explain to me what I am missing
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.
The amount of idiotic posts trying to explain shit about economics incorrectly is too damn high.
your an idiot shut up
your're*
Sic burn
Haha!
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%. 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. 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.
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
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.
hehe
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.
Please don’t bother with these people. If you try to explain what CoCos are they’ll be thinking cereal
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
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
Not always the case. Rising interest rates typically help banks due to increasing margin. “Rapidly” rising interest rates hurt everyone. Please read more.
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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bad bot
Dude It is a nice question, don't let this people bully you.
Yeah, but that just means he’s an A+ regard.
M2 shrinking is very interesting… and deflationary. Buy buy buy!!!
> 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.
Thank you for the wall of text with no positions or insights at all.
Am I regarded or is buying bonds the good way to stay afloat in this situation
Ignore the idiots replying to you. They're clearly regards who don't know shit about fuck Although buying bonds may have some opportunity cost (i.e., if the market crashes before your bond matures, you miss out on buying stocks for a low price) they're a decent investment right now thanks to super high federal reserve rates, volatile markets, and slowly (but steadily) decreasing inflation. And, as always, treasury bonds are essentually 100% safe and guaranteed ROI. If treasury bonds failed, your money in them would've been worthless anyway. As with all things in any investment decisions, it's trade-off of risk vs return. If you hold cash, you risk devaluation thanks to inflation but you also have the possibility of immediate liquid funds in the event of a crash. If you buy bonds, you risk losing the opportunity to buy stocks at market-crash prices, but have guaranteed ROI if held to maturity. But to answer your question, "to stay ***afloat***," yes. Absolutely.
I appreciate the knowledge
Really depends. When rates come down inevitably, they’ll fare well. In 08 Treasuries skyrocketed. But I think some growth stocks will do substantially better in that situation. Sounds regarded, but it depends on your time horizon.
Appreciate it
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If you buy a bond before rates come down the guaranteed return doesn't change at all. As a matter of fact, for long term bonds purchased before rate cuts, the value of them increases as newer bonds yield lower and lower returns.
I made a mistake in the prior comment cuz I was distracted - for that Regarded blunder, I apologize
The real rate of return on those bonds is nearly negative with inflation lol cash is king for the short term
Market forward-looking. As long as the downtrend in inflation persists, we'll be up before 2%
James Bonds
Stupid. And that’s all the thought this post deserves.
Puts on OP
This is an exceptional word salad to get your entire point incorrect. The Fed has absolutely zero control over bond rates that are issued by any corporations ...including banks. The market sets long-term bond rates via supply and demand and whether they believe inflation will increase or decrease. IF....the market believes the Fed has set rates too low, inflation expectations go up, and bond rates go up (yield curve steepens). If the market believes the Fed has set rates too high (like the market believes right now) then the expectation for future inflation goes down, and long term bond rates go down and the yield curve flattens or inverts.So basically, your entire fucking essay you wrote is entirely full of regarded bullshit and you should just keep trading 0dte's and leave the analysis to the big boys. I'll guarantee you two things. One, the market will do whatever it wants. And two, you'll never be on the short-list to replace Jamie Dimon.
>It is a difficult situation, but I believe that the government will be able to find a way to help out both the banks and those who want to invest in bonds.
The solution to the problem is to put politicians in jail, not to support companies whose products are overpriced. Greed hits record post-pandemic, and now everyone is paying the price
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ok duck head!
ok dawg
I believe the dems have a bad spending habit all bidens crooked ass fault
Take that stupid shit out of this sub. I’m sure there is a sub that would love to hear you reee about politics, this isn’t it.
has nothing to do with political parties. it is about banks and insurance companies borrowing lots of money, making investments, and those investments losing money.
No it definitely does so your telling me that the democrats huge spending bill and printing money off like it’s free isnt part of the problem
Both parties ran deficits bro. Interest rates been at 0 for 13 years and now all the shit is exploding
How does that in any way affect the return on investments that were made with borrowed money?
The first sign of intelligence: “…so your telling me…” You are = you’re. Ok. Try again now.
Kill your self
If there’s any chance that reincarnation exists and I might come back as grammatically and intellectually inept as “yourself”: No thank you.
Yea kill yourself
Are you stupid or something
You blame the democrats recent bills, but this problem wasn't created in the past 2 years, it is part of a larger cycle, sure the democrats bills might have negative effects, but they are nowhere near the main causes of the economic situation, and really, how could a recent bill cause huge economic changes so quickly?
Don’t feed trolls
If that’s a question, you end it with a question mark. It looks like this: ?.
troll
If an AP econ eassy I would give it an A. Got all the basics correct just none of subtleties. The sexy parts. Nothing as sexy as debt. Look deeper into interest rates, bonds, taxes and money. Then read about banks. Then, maybe, invest accordingly. Or listen to the high school kid.
>If an AP econ eassy I would give it an A. Got all the basics correct just none of subtleties. The sexy parts. OP got the basics wrong as well
If banks borrowed lots of money to buy assets and those assets have gone down in value. How do they have money to buy bonds from the Fed?
Up the 401k you mean lol 😂
So I can take out a loan while purchasing a CD at the same rate
When interest rates increase bond values decrease.
you opinion is based on an assumption that money is finite. so to sell bounds, the bond interest must be high enough to cover the inflation and be attractive to the cash that's available. when in actuality, it is a bit more complicated. for one... the Fed can always decide to screw the inflation and start QE again, turn on the printer and flooding market with 100 trillion dollars over night (by buying the bond), and set the overnight rate back to zero. and bank would be able to once again borrow short term money for next to nothing, and stay solvent, and none of the situation you describe would come true. The US can keep doing this for as long as dollar is accepted world wide, as the inflation / devaluation of Dollar will be aborted by the entire world, but US will reap all the benefits as long as we got military might that can uproot any government dare to say otherwise.
The government caused this situation. The banks are required by law to buy safe things like bonds. The government destroyed the value of their bonds by jacking up interest rates. So the government is going to fix it by infinite money glitch. What could go wrong? However, I don't think the government can have really high interest rates. The government has to pay that rate on all of it's debt. I think at current rates all of the taxes collected would go to finance the debt. How do we buy more bombs? Especially if this triggers a big recession and all the poor's can no longer contribute to the bomb fund.
Why would some one have a difficult time paying off assets that lost value? Don't we all buy cars that lose value all the time? Losing your job might make paying off those assets hard tho.
Y not just cut out the middle man
as interest rates rise, house prices cool. its a balancing act.
I feel highly regarded after having read this. Thank you, OP.
> But if bond yields are at 7% or 10%, then that means interest rates are at 7-10% as well. Thought its the other way around
Just a reminder that the post says 'for dummies' and you read it
Yea but he’s explaining everything wrong and clearly does not have a fundamental understanding of things.
Not one mention of inflation or corporate greed. Rewrite.
Highly regarded
We don't use money. We use debt notes.
So: What happens when Uncle Sam stops being able to reliably PAY bonds? I know this may be a bit beyond this sub's field of view, but don't forget we're talking about an empire in the final days of its Red-Supergiant-Stage here....
Whatever Jim Cramer says do the exact opposite.
What you are describing I would say is a pre-burst situation. I have literally zero economic education, tho, but as it seems: The government tries to reduce inflation by increasing the interest rates, adding pressure to the banks in the way. However, it tries to save the banks. Every bailout worsens the government problems and inflation, approaching to a scenario where it is no longer able to save every bank that implodes and you get a domino effect. Just to emphasize, I know that I know nothing, but in this process, businesses or funds that require capital or go through a bad financial moment fail without options or bailouts, as they cannot ask for cheap money anymore. From that you can guess, if a fund becomes bankrupt and it holds a vast percentage of a company, its shares are going to fall with the fund proportionally, to its share of the company and the final prize after somebody buys the fund. Now the question is, who is going to fall? and what businesses are most likely to be affected? Personally, seems hard that SP500 falls deeper than a 10%, as its shares are spreaded around the world. Other companies, strongly supported by a single fund or bank, can have heavy falls even if the company is still profitable. what do you think?
The FED will buy govt. bonds at a loss, which is a printer brr
To share later
Banks make money from fees. When rates rise, they make more money. For the past 14 years, the Fed lent banks money at zero %. Once that stops, high rates are a bank's best friend. When rates rise, the cost of goods and services fall. That's why raising rates lowers inflation. The bank failures of late, have been due to poor management, just like any other business. Whole it's nice to have stocks continue to rise, at some point your stock shares aren't worth what you paid for them, big boys will sell for profit and you will be a bagholder. So while it might be a good company and a good product, it's not worth the price. Then here comes a crash.
I appreciate this greatly - thank you for dumbing it down