IFB147: How Does the Fed Affect Joe Schmoe

Announcer (00:00):



You’re tuned in to the Investing for Beginners podcast.
Finally, step by step premium investment guidance for beginners led by Andrew
Sather and Dave Ahern. To decode industry jargon, silence crippling confusion
and help you overcome emotions by looking at the numbers. Your path to
financial freedom starts now.



Andrew (00:36):



Welcome to the Investing for Beginners podcast. This is
episode 47 I’m in the driver’s seat right now, but don’t worry, Dave is right
here. We’ve got a lot to talk about and I’m going to be asking him a ton of
questions because he’s been watching this particular topic, especially closely
and knows a ton more than I do about it. And so it will be a good episode for
me to ask questions because I’ll be coming at it from the mindset of a
beginner. And I’m hoping that a lot of people are feeling that way too. And
you’ll be able to answer a lot of our questions. So what’s up with the fed?
First off, tell us what the fed has been doing lately and then maybe we can
explain what they are and what they’ve done lately in respects to like the
2008, 2009 great recession and some of the events since then, but whether
they’ve been doing and how is that affecting the economy and the current virus
and everything like that?



Dave (01:44):



Boy, that’s a good question. So the, the fed has, for
those of you who are not familiar with what we’re talking about, the, the, what
we’re referring to is the federal reserve bank. So this is the central bank for
the United States. And in essence what they do is they are there to help
stimulate the economy or slow down inflation. So their basic two rules are they
want to create more jobs and they want to, they want to control inflation as
best as they can. So the way that they do that is they use funds with the banks
to try to create more money or reduce money in the economy. And now does that
mean that they physically print more money? Not necessarily. They do. Do some
of that. But the majority of what they do is they create money by creating money
with the other banks in allowing them to buy bonds from the federal government.



Dave (02:41):







So treasuries, and then that money is is taken away. It’s
not taken away. It’s used as deposits to lend out to us to buy stuff, cars, you
know, buildings, restaurants, whatever it may be, houses, all those kinds of,
and so that’s how they put more money back into the system. So what they’ve
been doing recently with the coronavirus hitting us, the pan Ana that has gone
through the world, they have taken their balance sheet and basically exploded
it. They’ve just kind of opened everything up and said, whatever it is, we’re
going to buy it. So the first thing that they did was they lowered all the