I think that when gas is cheaper they still need the incentive but the fun of doing doughnuts is worth the cost of the gas. The fun is the return on the investment, but that amount of fun isn't worth higher prices.
When the Fed lowers interest rates, what they are essentially doing, is taking money FROM THE FUTURE, and making it available NOW. The result of this process, is that credit that should have been available in the future, is no longer available. This is why the business cycle hurts long-term projects the most.
Good question. Here's my best answer at the moment, but I feel there's still more to it:
The Fed feels that it must inject money into the economy in order to stimulate economic growth. However, they also know that this causes (price) inflation, and so they know they have to tighten credit after they loosen it (or there will be bad consequences).
Great vid. I hadn't seen interest rates as the price of money.
The only thing I don't understand is why you say the credit crunch is the shortage caused by artificially lowering the price.
Since the entity producing this currency can create as much as they want, the fact that they set prices too low shouldn't in itself cause shortages, they can always print more.
Unless the point is that high inflation reduces the incentive to lend money which causes the credit crunch.
I think that when gas is cheaper they still need the incentive but the fun of doing doughnuts is worth the cost of the gas. The fun is the return on the investment, but that amount of fun isn't worth higher prices.
sharperguy 2 years ago
When the Fed lowers interest rates, what they are essentially doing, is taking money FROM THE FUTURE, and making it available NOW. The result of this process, is that credit that should have been available in the future, is no longer available. This is why the business cycle hurts long-term projects the most.
D4Shawn 2 years ago
Good question. Here's my best answer at the moment, but I feel there's still more to it:
The Fed feels that it must inject money into the economy in order to stimulate economic growth. However, they also know that this causes (price) inflation, and so they know they have to tighten credit after they loosen it (or there will be bad consequences).
D4Shawn 2 years ago
Well Done.
brave89ulysses 2 years ago
Great vid. I hadn't seen interest rates as the price of money.
The only thing I don't understand is why you say the credit crunch is the shortage caused by artificially lowering the price.
Since the entity producing this currency can create as much as they want, the fact that they set prices too low shouldn't in itself cause shortages, they can always print more.
Unless the point is that high inflation reduces the incentive to lend money which causes the credit crunch.
NoCryingNowYes 2 years ago 2
good work
AndyMH182 2 years ago 2
I'm raising the interest rate on this video cuz it's pure gold...(ahem)
Masturbating4America 2 years ago 2