What the F**k is the Federal Reserve?
Explicit content warning
06/01/15 • 48 min
Larry Ludwig from Investor Junkie is our guest today to explain what the Federal Reserve is, does, and why you need to know.
Put simply, the Fed sets monetary policy and either adds or removes money from the system. There are twelve regional Feds across the country to help manage local banks. It was created in 1913 as a way to prevent feature economic disasters. Bit of a fail I think.
The chairperson is appointed by the president but is supposed to operate independently of the government. Prior to 1971, we operated on the gold standard so the Fed made sure the amount of money matched the amount of gold. Now we operate on a “faith based” system where we rely on the government to determine the value of money.
In order to help stimulate the economy after the crash, the Fed allowed banks to borrow money at 0% interest. The rate has been that low for seven years. Lowering the interest rates is meant to stimulate the economy. When rates are low, people can borrow money to buy things they couldn’t afford before. When interest rates are raised, that means that the economy is doing well and is at nearly full employment.
The Fed is also tasked with keeping inflation/deflation in check. They have not always been successful but the average rate of inflation has been about 3% since the Fed’s creation.
The Fed also determines how much cash banks must have in reserve.
Ultimately it’s productivity that grows an economy and not slight of hand by the Fed. And a lot of economists consider all this smoke and mirrors to be merely kicking the can down the road, just delaying the next 2008 style melt down.
Is the Fed good or bad? That’s up for debate. The Fed has helped pull us out of crisis but did they create the crisis in the first place? Are they creating artificial cycles?
What can you do to protect yourself against the whim of the Fed? Make sure to have a good asset allocation strategy. Aside from that and repatriating, there isn’t much else you can do.
It’s good to understand the Fed but ultimately, invest your money in the LMM set it and forget it style and don’t worry too much about what they are doing.
Show Notes
White Beer: A crisp, summer beer.
Investor Junkie: Larry’s site dedicated to helping you become a better investor.
The Creature from Jekyll Island: A look at the Federal Reserve.
Betterment: Don’t worry about the Fed and invest your money.
Patreon: Want to keep LMM ad free? Donate now!
Learn more about your ad choices. Visit megaphone.fm/adchoices
Larry Ludwig from Investor Junkie is our guest today to explain what the Federal Reserve is, does, and why you need to know.
Put simply, the Fed sets monetary policy and either adds or removes money from the system. There are twelve regional Feds across the country to help manage local banks. It was created in 1913 as a way to prevent feature economic disasters. Bit of a fail I think.
The chairperson is appointed by the president but is supposed to operate independently of the government. Prior to 1971, we operated on the gold standard so the Fed made sure the amount of money matched the amount of gold. Now we operate on a “faith based” system where we rely on the government to determine the value of money.
In order to help stimulate the economy after the crash, the Fed allowed banks to borrow money at 0% interest. The rate has been that low for seven years. Lowering the interest rates is meant to stimulate the economy. When rates are low, people can borrow money to buy things they couldn’t afford before. When interest rates are raised, that means that the economy is doing well and is at nearly full employment.
The Fed is also tasked with keeping inflation/deflation in check. They have not always been successful but the average rate of inflation has been about 3% since the Fed’s creation.
The Fed also determines how much cash banks must have in reserve.
Ultimately it’s productivity that grows an economy and not slight of hand by the Fed. And a lot of economists consider all this smoke and mirrors to be merely kicking the can down the road, just delaying the next 2008 style melt down.
Is the Fed good or bad? That’s up for debate. The Fed has helped pull us out of crisis but did they create the crisis in the first place? Are they creating artificial cycles?
What can you do to protect yourself against the whim of the Fed? Make sure to have a good asset allocation strategy. Aside from that and repatriating, there isn’t much else you can do.
It’s good to understand the Fed but ultimately, invest your money in the LMM set it and forget it style and don’t worry too much about what they are doing.
Show Notes
White Beer: A crisp, summer beer.
Investor Junkie: Larry’s site dedicated to helping you become a better investor.
The Creature from Jekyll Island: A look at the Federal Reserve.
Betterment: Don’t worry about the Fed and invest your money.
Patreon: Want to keep LMM ad free? Donate now!
Learn more about your ad choices. Visit megaphone.fm/adchoices
Previous Episode
Crowd Sourced Real Estate Investing
Today we interview Benjamin Miller from Fundrise. Fundrise is a crowdsourcing site that allows anyone to invest in real estate.
Real estate can be a great investment but you need some serious money to do it. Not anymore. Fundrise allows you to invest small or large amounts of money in various properties. We even wrote a full review of Fundrise – you should check it out!
The commercial real estate market has outperformed other investment vehicles for the last thirty years. It would be great if we could all become commercial land lords but most of us probably don’t have hundreds of thousands of dollars sitting around.
With Fundrise, you need $1,000 to open an account. They have dozens of people looking at hundreds of possible investments. Finding a good commercial real estate investment isn’t easy.
Fundrise negotiates the deal and writes then check and then offers the opportunity to investors. The investment management fee ranges from .33-.50% per year. How fast can you pull your money out of Fundrise? Not as quickly as you can with something like Betterment. Their notes have an average age of two years.
You don’t have to be an accredited investor to invest through Fundrise. They have worked with the SEC to open certain investments to anyone who has the $1,000 minimum. You don’t want this to be a huge part of your portfolio but as the average returns are around 13%, this type of crowd sourced investing is something to seriously consider.
There isn’t a deal for investors who aren’t accredited right now but Benjamin suggests setting up an account so you can see when there is a deal that you can get in on.
Show Notes
Fundrise: Crowd sourced real estate investing.
Fundrise Extinction: Cool subway ad!
Fundrise Internet: Next to be extinct.
Fundrise Jobs: Welcoming all out of work bankers.
River Horse Baltic Porter: Aged in Peruvian rum barrels.
Molson Canadian: It’s the NHL play offs,what else would you drink?
Learn more about your ad choices. Visit megaphone.fm/adchoices
Next Episode
Finding Your Productivity Sweet Spot
It’s important to get the most out of your day. But you can take the quest for productivity too far resulting in burn out. Find the productivity sweet spot.
During Andrew’s recent burnout, he realized he was taking the need for productivity too far. Sometimes you just need a night vegging out in front of a video game.
We’re all motivated by different things, the key is to find out what motivates you so your productivity isn’t scattered and ineffectual. External forces, internal? Are you a morning person or a night owl? Knowing what moves you is important to get moving.
If you have a month to do a project does it take you a month or three days? If it takes you a month, is the whole thing done the last day of that month? Do you like a stark space or one full of clutter and color?
Are you a list maker? Especially for your long term list, go through it once in awhile and make sure you still need to do all the things you wrote down. Crossing things off is satisfying but things change and still doing something just because it’s on the list is anti-productive.
Make sure you focus your productivity. Every minute doesn’t have to be accounted for, that’s how your get burn out.
Show Notes
Better Than Before: Mastering Habits of Our Everyday Lives
Patreon: Donate here to keep LMM ad free.
LMM Tool Box: All the tools you need to be more productive.
Featured Image Photo Credit: “Xbox One Controller” by mastermaq on Flickr
Learn more about your ad choices. Visit megaphone.fm/adchoices
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