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25 Responses to “Banking 16: Why target rates vs. money supply”

1. 
   Comment by MrMortgage1
   July 31st, 2009

   mortgageartist. com …
   mortgageartist. com

   The best thing you can do is arm yourself with knowledge, even better if it’s free. a little time and a few clicks now could save you years and thousands of dollars later.

   the choices you make today define your tommorow.
2. 
   Comment by snopro54
   July 31st, 2009

   You need to go back …
   You need to go back and explain ROE and ROA, expected returns so this is more clear.
3. 
   Comment by marikomikkelsonsd
   July 31st, 2009

   Nice work. keep it …
   Nice work. keep it up. mean time come for social media marketing for esteembpo**com GHFDJ
4. 
   Comment by rndllhllw
   July 31st, 2009

   Nice work. keep it …
   Nice work. keep it up. mean time come for social media marketing for esteembpo**com
5. 
   Comment by parksjan
   July 31st, 2009

   Nice work. keep it …
   Nice work. keep it up. mean time come for social media marketing for esteembpo**com
6. 
   Comment by dsws2
   July 31st, 2009

   Does money supply …
   Does money supply have to do particularly with new projects undertaken, or is that just an example? I thought it was mostly intended ordinary purchases versus money in checking accounts. An increase in checking account balances happens whenever money gets deposited into checking from a source other than another checking account. That can be a new loan, or it can be from CD, money market, etc. For individuals, isn’t that mostly a matter of expectations about paychecks vs spending?
7. 
   Comment by jackuy12345
   July 31st, 2009

   keep them up!!!!
   keep them up!!!!
8. 
   Comment by Corinne1231
   July 31st, 2009

   He was talking …
   He was talking about the return on the projects, not on bonds. Banking’s always prioritizing the safer projects, so they could get the interest plus the lending back at last.
9. 
   Comment by dpod916
   July 31st, 2009

   the reason is …
   the reason is because the person who wants to borrow the money will only be willing to borrow at a certain rate…if your project will yield a 30% return on investment then you would be willing to pay 20% in interest where as if you will only receive 5 percent return then you would not be willing to accept any rate of interest above 4 percent because then you would be either breaking even or losing money. it is the essment of risk by the borrower not the lender in this instance.
10. 
    Comment by sinner212121
    July 31st, 2009

    i dont understand …
    i dont understand why a good project would lend with higher interest than a bad project? shouldnt the bad project lend with higher interest due to its higher risk?
11. 
    Comment by Unoznixon
    July 31st, 2009

    I really liked your …
    I really liked your channel and this video. If you need any help getting this video exposed I use a site called tubeviews (dot) net It has really helped like 20 of my main videos get to the top in position.

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12. 
    Comment by Roshibear
    July 31st, 2009

    This has been very …
    This has been very informative, thanks for putting out this overview of the banking system. It filled in some gaps in my understanding. However, isn’t this whole finanical crisis due to the FED keeping interest rates artifically low and thereby encouraging just the kind of risky, potentially wealth destorying investment that it was designed to protect us from?
13. 
    Comment by i6i85
    July 31st, 2009

    by the way there is …
    by the way there is a bollywood actor named salman khan in india
14. 
    Comment by i6i85
    July 31st, 2009

    Sal, don’t u think …
    Sal, don’t u think that when the target interest rate is consistent, instead of banks immediately ‘loaning’ to projects which prefer low interest (less than 4%), banks will store that money/currency and wait until spring season (when demand for loans are high) and only THEN will they proceed towards lending that money/currency to people with low interest.
15. 
    Comment by michaelfresco
    July 31st, 2009

    The FED has an …
    The FED has an extremely difficult task to forecast the expected return on the projects undertaking by 305 million citizens.

    I believe that a free banking sytem, where there is not a single planning agency (FED) to project the required M1,M2 is a much better system. The current system is doomed to fail every 4 or 5 decades.

    Reference
    For more Google: Econtalk Selgin on Freebanking
16. 
    Comment by michaelfresco
    July 31st, 2009

    test
    test
17. 
    Comment by HamiDjoukou
    July 31st, 2009

    For me it wasnt …
    For me it wasnt clear that the Treasury and the Fed were two different organisations; I umed they were the same or somehow a department of government.
18. 
    Comment by khanacademy
    July 31st, 2009

    They are both …
    They are both actually consistent actions with increasing the money supply. As long as inflation does not become an issue and the total government debt does not become unsustainable, the Treasury could issue more and more debt which essentially gets bought by the Fed with newly printed notes. This is the Fed’s last tool to fight a deflationary spiral.
19. 
    Comment by HamiDjoukou
    July 31st, 2009

    Yeah, I was …
    Yeah, I was questioning the similar thing in the previous video.
20. 
    Comment by sgentry777
    July 31st, 2009

    Thanks. Extremely …
    Thanks. Extremely helpful.

    In the context of the current crisis, the gov’t appears to be doing contradictory things concurrently–(1) as you explain, BUYING Treasuries in the Open Market in order to ‘lower FF rate’ and thereby INCREASE money supply/liquidity while at same time (2) SELLING Treasuries (borrowing) in order to fund ‘bailouts’ , thereby DECREASING (or mopping up) liquidity. I’m confused.
21. 
    Comment by jdrizd2
    July 31st, 2009

    Assuming the amount …
    uming the amount of transactions can keep up with the cost of staying in business.
22. 
    Comment by khanacademy
    July 31st, 2009

    Just to hit the …
    Just to hit the point home, let’s say that you start with $.99 that you use to buy an apple which you sell for 1.00 (so .01 gross profit or 1% gross margin). You can then use the 1.00 to by another apple and repeat. If you do this 100 times in a year, you will make upwards of $1.00 (since you can reinvest the profit) on a .99 initial investment. That is a 100% return on investment despite only making a 1% margin on each transaction.
23. 
    Comment by khanacademy
    July 31st, 2009

    Those percentages …
    Those percentages aren’t expected returns, they are the funding rates at which the projects would proceed. My point is that by focusing on rates, the “quality” threshold for projects stays constant. Also, low gross/operating margin at a retailer doesn’t mean a low expected return on their investment (I’ll eventually do a playlist on topics like that).
24. 
    Comment by acidtrashy
    July 31st, 2009

    I have only …
    I have only understood about half of what I’ve seen from you. But I am better off for it. Thank you.
25. 
    Comment by jdrizd2
    July 31st, 2009

    Just because the …
    Just because the expected return on an investment is low doesn’t mean it is risky if it is a necessity, I believe that most supermarkets profit margin is low but they are high necessities. Other businesses are highly risky, i.e. airlines and automakers, yet can persuade banks and government to create loans. Why is there so much socialized baiilout for high risk businesses?