POTUSRoaster

Today the Federal Reserve, America's Central Bank, lowered its interest rate by one quarter of a percentage rate. The purpose of the Fed is to promote maximum employment and stable prices. These are the two goals set by Congress. The Fed must be independent of all politics, or at least as independent as possible. Why? In order to do the job Congress set for it, the bank cannot be seen as promoting any one politician's desire over that of any other. In other words the Fed cannot be see approving the demands of one person or party over that of any other.

POTUS wants to control the Fed so that he can control the interest rates that banks charge him, and, lets face it, the guy has a lot of loans. Practically every piece of property he owns probably has a mortgage or two. If he can lower the interest rates on loans, he will pay less, and have more money.

So, why might this be good for borrowers like POTUS and not so good for others. When businesses get lower interest rates, they borrow and invest more. This means they will have more loans to pay off. Businesses need money to pay the banks. To get more money, businesses increase the price of the products they make. When prices go up it is called inflation.

Some businesses will take out loans so they can invest more in stocks or property. This can cause a bubble in prices. Bubbles are generally not sustainable and eventually cause a collapse in prices.

The other problem that this causes when interest rates are low is that banks cannot pay much to savers for the use of their money. You loan your money to the bank when you put it in a savings account. Many save for a down payment for a home. When inflation is low the bank pays less to use your money.

POTUS wants to control interest rates for two purposes. First, low interest rates allow him to borrow more money. During the up side of a low interest rate bubble, POTUS could say “See what I did! Credit Card interest is low.” During the down side of the bubble POTUS can say “Look what the FED did. Someone should control them.”

Stable prices and full employment make living easy. The Fed needs independence to give us both of these. Stay well and be happy with your friends and family,

POTUSRoaster