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sfe22 | 2 years ago
“People” in my comment includes groups of people too (eg companies, governments). Shouldn’t one be able to set the price of borrowing, why we must have one party deciding for everyone else.
sfe22 | 2 years ago
“People” in my comment includes groups of people too (eg companies, governments). Shouldn’t one be able to set the price of borrowing, why we must have one party deciding for everyone else.
gameman144|2 years ago
Lending to banks is precisely what the Federal Reserve does.
> Shouldn’t one be able to set the price of borrowing, why we must have one party deciding for everyone else.
This is also already the case. If you want to take out a mortgage or a personal loan or a credit card, the interest rate is negotiated entirely between you and the lender (the government has no say in dictating that rate).
The reason Fed interest rates affect your interest rates is that if banks have to pay more interest to borrow from the Fed, they are willing to offer consumers more money for their deposits, and are also going to charge more for money they lend out (since they still need to make a profit on it).
This is part of the reason for recent bank failures: if you're a bank and you offer depositors 1% on their deposits to go and make long-term investments at 2%, you'll make that 1% difference as profit.
If other banks suddenly start offering depositors 3% (due to increased bank-borrowing rates), you're going to either lose depositors to the much better interest rates at other banks or you're going to have to take a loss on those 2%-investments you made, offload them, and make other investments at a higher interest rate.
In all of this, the only hand the Fed had in things is saying "We're charging banks this much interest on the money we lend them"
douglasisshiny|2 years ago