Understanding the Impact of the Federal Reserve on Your Daily Life
Should You Pay Attention to What the Fed Does?
From money market accounts to mortgages, and even commercial debt margins, the decisions made by the Federal Reserve can significantly influence our financial lives. Understanding their objectives and how they manipulate interest rates is essential for anyone looking to make informed financial decisions.
Andy Woodward, banking and software expert, joins me to discuss how the Fed's decisions affect most of our financial products and decisions.
Time Stamps
00:19 Introducing Andy Woodward: A FinTech Veteran
01:07 The Fed's Influence on Your Wallet
02:23 Decoding the Federal Reserve's Moves
03:28 The Ripple Effects of Rising Interest Rates
04:48 Navigating the Complex World of Bonds and Interest Rates
08:04 The Impact of the Fed's Decisions on the Economy and Individuals
13:28 Exploring the Consequences of High Interest Rates
20:49 The Future of Interest Rates and Financial Strategies
33:14 Understanding the Fed's Role and the Debate Around It
36:06 Wrapping Up: The State of Finance and Looking Ahead
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Hello again, and welcome to the me financial podcast. I'm Michelle Moses, your host. And today I have Andy Woodward with me again today, and we're going to talk about the Fed. Welcome Andy. Hey Michelle.
Uh, Andy is a software developer and architect working in financial technology, including banking and payment processing for more than 30 years.
He was first introduced to Bitcoin in 2011. and began actively working on crypto development in 2016. I guess I could have left that out since we're not doing the crypto anymore. But Andy, I have Andy on because he is probably the most financially, uh, smart person that I know. He knows about every market, all the crypto, the payments.
I mean, obviously since this is your job on the day to day. Uh, so I often call him and talk about things to say, you know, am I crazy for thinking this? Or, you know, we [00:01:00] have lunch and catch up. So thank you again for being on. Uh, cause I really enjoyed the, uh, other, uh, other episode that we did.
So, as I said, today we are going to be talking about the Fed and how it affects your everyday life.
So we're talking about your money market accounts, your mortgage, your commercial debt, uh, margin, uh, and what the goal of the Fed is. And so that's what we're going to be talking about today. Yeah. Fun stuff. I know. Glad to be back. I know we're going to try to make this exciting.
It's a, you know, it's a little bit of how the, uh, the hotdog is made, if you will.
I know, I like, it's this nebulous thing out there and what did you call it? The Oz? It really is. The great and wonderful Oz. Yeah, that's what the Fed really is, is that we don't really know what's going on in there. We don't really know who's, I mean, we know who's working and stuff like that, but they kind of keep everything under, uh, They keep the process under wraps while they're doing it, but after they're done, you know, all the minutes are out there, they produce a [00:02:00] huge amount of data, you know, so for anybody to say, well, we don't know what the feds going on or doing.
That's not true. The website is all out there. Very overwhelming. I often go on there and I'm like, okay, this is. This is too much. Yeah. So I do go on there and read some minutes sometimes. And I mean, if you guys go on there, it is a huge, huge website. So anyway, so let's get started.
Cause I think the Fed has been in the news obviously, because rates have gone up 5 percent over the last year.
And obviously this tried to get inflation because we pumped all this money into the system during COVID. Uh, and with more money, it became, you know, everybody wanted to buy more things. Uh, and then we had all these other COVID things happen, and so we've seen some huge inflation and what the Fed is trying to do is get the inflation back down, uh, and their goal is to 2%.
Um, and so, Andy, what are your just initial thoughts on all of this on the 5%? Do you think 5 percent is a lot? [00:03:00] I feel like it's a lot, uh, very quickly. And, um, I, I, I don't know. I don't know what I'm just, it takes time to get these things to the system. They usually say it takes two years to get things to the system.
And so I think 5 percent is a lot. And so I am very hopeful that the inflation will become under control. Um, but I also am not my, I'm not personally hurting that much, except for like, when I go to travel, that's where I would love to see some prices come down. So, yeah, I think, uh, You know, I believe this is the fastest that the Fed has ever raised interest rates in their history.
So it's been a really rapid increase going from zero to 5 percent in such a short amount of time.
And, you know, the, what the Fed does, at least from a, anybody working on anything financial, the Fed affects all of it. So whether you decide to hold your money in cash or to buy a house or a rental [00:04:00] property, they, the main thing that they drive that affects everybody is interest rates.
They're the one that set the rate. They set the, you know, just from a technical standpoint, they set the interbank lending rate, but that affects so many other rates, you know, the treasuries are essentially traded on the open, open market, but, you know, it, You're generally, if you're, whatever you're going to get in your savings account, treasuries, you're going to get a little bit more.
So the market essentially drives the, uh, uh, drives the price of the treasuries down, which drives the interest rate that's paid up because bonds actually work the inverse. Yeah. And that's, what's really hard. And this is where people get really lost because the bonds and what the fed does is kind of opposite.
Like you kind of have to think. a little hard about it because what they're trying to do is either put more money into the system or they're trying to take money out of the system. So when they have a high rate on bonds, so like say, let's [00:05:00] say treasuries right now, they're about 5%, they're trying to get money out of the system because they want to make that very enticing.
It's like the I bonds being so high, um, and late last year, uh, they want to get money out of the system. And so basically what you're doing is you're giving the government money, right? And they're taking it out of the system and then you are getting that bond and you therefore will not be spending that money anywhere else.
So that is, I think, the gist of how you need to think about bonds. And when you hear these words like quantitative easing and tightening and all of that, all they're doing is buying and selling bonds to be able to take money in. Out in and out of the market. Yep. And the, you know, and the main thing is, is that this just affects so many different things.
So like we were talking about, uh, before we started, like I'm buying treasuries, I think for the first time. I've never bought treasuries in my life. They just made no sense. Yeah. So, so there's a whole new set of, [00:06:00] uh, products, but it's like the iBond too. I had never bought an iBond in my life until last year either.
Maybe it was the year before, but yeah, I had never bought any of that either. Or even considering your savings account and where you move it. When, when it was paying 0. 1%, you didn't really care, but now if it's a difference between four and a quarter and 5 percent that you're being paid. You're talking real money in order to, so actually, you know, having money in a savings account is a viable option now and what's interesting about interest rates and the rise of interest rates is prior to the great financial crisis.
So prior to 2008. Uh, your savings rates actually were higher than inflation. So the real rate that you actually made was always a little bit better than inflation. But when they actually implemented zero rate policy, that actually all changed. So even to this day, even though savings rates are more attractive.
[00:07:00] It still doesn't, uh, inflation. So we kind of created this time period where the, where there was really no incentive to save, but then when you have all of that money, just going, Hey, we'll just buy a bigger house and better car and everything like that, then. It creates inflation, you know, it's supply and demand.
If there's, there's not an unlimited amount of goods out there when people have money and are buying things, then prices go up and you're exactly right. They use, uh, interest rates are one of the tools to rein that in. That's like, Hey, hold on. Right. You need to start thinking about that car loan. Uh, yeah.
for buying a new car when it's, you know, 9 percent instead of 4%. Right. And so that might keep people from buying a new car. And you need to think about it too, uh, about from a business standpoint is because businesses are going to start paying more on their debt. So as they have debt, then they're not going to want to spend as much [00:08:00] because then it's going to cost more.
So it really does go into. Everything that we touch from a business standpoint and a personal standpoint. Yeah, that's a, that's kind of a new perspective is that, you know, a lot of people don't have the awareness that, uh, corporate debt, you know, unless it's bonds that have a stated expiration and, uh, and interest rates.
But most corporate debt, like corporate financing for inventory and things like that is at market. So you've got companies now that have, you know, millions of dollars worth of additional interest expense that they need to account for. And, you know, sooner or later, you know, like you said, this takes six months to two years to roll out, but sooner or later, these additional expenses are going to all add up and everything like that.
Yeah. People are going to start making different decisions about how they do things. Well, and it's always interesting to me that people, it just depends on who you're talking to and what stage they are in life, whether they want interest rates high [00:09:00] or not. Cause if you're a retiree, they didn't like making that amount of money on a CD or so, you know, cause that's where they kind of keep their short term cash.
Um, at least a lot of retirees that were coming to me. And then, um, you know, but then you've got people that are younger and they want to be able to. you know, flip houses and buy a house and buy a car and they would like to have low interest rates so that that makes it possible. Um, and another interesting thing I think about the Fed, I'm kind of getting sidetracked here, but is the unemployment rate.
Um, is that, you know, they want a little bit of unemployment to slow down inflation, right, but their goal really is to have zero employment or to have zero unemployment. Um, so, you know, it's like, there's always this, this balancing act going on between You I feel like pleasing all of the people. Just that cul de sac on unemployment, zero unemployment is impossible and it's actually a bad thing.
You need to have, you need to have a little bit of slack in the employment. pool just [00:10:00] for over overall, a healthy economy, the number that I heard recently, and I don't recall exactly where I heard it. Originally, I heard a number that the Fed was going to, uh, leave interest rates, or they were looking at the interest rate to equal the inflation rate.
So they were looking at 5%, uh, interest rate, 5 percent inflation rate to make that decision. But now I've heard. Uh, the stat, and then again, apologies, but it's just kind of a rule of thumb that I'm using that they're looking at about a percent and a half above inflation. So, you know, but if you look at the, uh, you know, like the Chicago board of options exchange had posts, what they think based upon market analysts and everything like that, where they think.
Interest rates are going and just short term, uh, for the next Fed meeting, there's about a 76 percent chance that the Fed's going to [00:11:00] raise, they're speculating. Yeah, from what I've been reading, um, yeah, that they were going to either wait this time around and then keep raising it. So I think we're just in it.
So anyway, guys, that's what we're here to say is that we're in it and it's not coming down. But anytime soon, but it will, it will, it will sometime, but I think right now, more than anything, the Fed is it at some point at a level off, I think at a level off this year, I don't necessarily think it's going to start coming down, but.
The key takeaway here is the Fed is in motion. So regardless of what you're doing from a financial, uh, standpoint, whatever, whether you're looking to buy something or sell something, whatever it may be, whether it's a rental property or a bond or put money into the stock market, it's a factor. Uh, so, you know, like there's speculation that if the Fed, uh, goes ahead and levels off that market will go nuts and, or if they [00:12:00] start lowering and things like that.
So right now, you know, markets have been kind of in a holding period, but everybody's watching what the Fed is doing.
And so right now, from a, like a real estate standpoint, like our own personal, you know, Like Americans move every few years. And, but right now a lot of people are holding on, holding onto their houses because, you know, well, I don't know if it's the interest rate, but also that being able to afford to get into another house because it had the housing market has gone up so much that, uh, choosing to, uh, go up another level and, you know, pay more for your mortgage or just stay where you are.
And so now we're seeing a situation where. At least in Phoenix, we're seeing, um, like supply issues because nobody's putting their house up for sale. Yeah. Yeah.
So, I mean, this is just kind of the ups and downs and I, you know, I think a lot of this stuff is really interesting because I don't necessarily think any of this stuff is bad.
Like, I thought the Great Recession was really bad, but, um, there's always opportunities and these ups and downs and you need these ups and downs in [00:13:00] order to, like, have new opportunities to make money and to do things. Do you agree with that? Like I, yeah, I don't stress about this stuff anymore. It's more to me about, okay, well, like what is the good thing to do in this situation?
The game got a lot more complicated. It's no longer the easy money situation. So as money's tightening. So in addition to interest rates going up, they're pulling liquidity out of the, uh, interest rates. out of the market. So banks are a little bit more skeptical about lending and things like that. So it made the game a bit more complicated, which makes it, but like you said, it creates opportunities for those that are aware of how these things go.
And you and I talking about buying treasuries. I mean, I've never bought treasuries in my life. And now that they're over 5%, you know, like I have clients with cash in their accounts and we have bought some treasuries to, you know, I mean, what, it's a no brainer. It's guaranteed by the government, three, six months, you know, whatever, whatever we're [00:14:00] buying.
And so that's why I think you see the runs on the banks too, sometimes is that people see that they can make more money right outside of their 1 percent at this bank and they're going to go over here and they're going to make four and a half percent because those banks are buying the treasuries. Five, right?
And then they need to make something. So maybe you're making four. Well, the, the, the trick they're talking about the, uh, the bank issue is, yeah, that you're exactly right. Is that people are like, Hey, wait a minute. I'm seeing all these ads. So then I'm going to move my money over a percent. So they just go, go ahead and move their money over to another bank.
But meanwhile, at least the banks that failed, what they got caught on is they locked in. Uh, treasuries, longer term. So you're talking five tenure treasuries where they locked in at 2 percent and then all of a sudden they're having to pay 4 percent in order to retain their customers. It's just not sustainable.
Right. So they got caught in a mark to market situation because those 2 percent bonds [00:15:00] went down to the point that the rate that was like worthless was related to the market. So they lost. You know, a significant percentage of the value of those particular bonds, so they no longer covered than the loss of deposits and it, you know, in the, by and large, the banks didn't necessarily do anything wrong.
They were playing by the rules, but they got caught locking in. Yeah. And I don't know that even on a personal note that I would do that. And I know that, you know, by a lot of rules, but, um, and I, you know, I left this out, but Andy is part of the board on a bank, right? Right. Okay. So Andy knows a lot about banking.
So I'm on the, just, I'm on the advisory board. I'm not on the actual FDIC board. Okay. But you still know more than 99. 8 percent of the people out there. So on the, I would never make that decision as just my, on my personal to lock in 2 percent for five or 10 years. on a long term treasury. So why would a bank do that?
I think the, [00:16:00] uh, you know, normally if you, if you look again at normal times, when it comes to interest rates right now, we're in what's called an interest rate inversion, right? Because everybody is assuming that interest rates are going to go down sometime in the near future, within the next year or two.
Interest rates on, you know, the three month, Uh, treasuries are significantly higher than the 10 and 30 year treasuries, and that's what we mean by when you hear inverted yield curve. So you'll see those headlines sometimes, guys. And so what that means is like the three month bond. So somebody borrowing money for three months is going to pay like 5% versus on 10 years it's paying like 2%, right?
And so that is usually what happens is that you would pay more. The longer you have somebody's money, because obviously you're tying it up for a longer period of time, and so this inverted yield curve is something that you had always heard in the past that this is so bad for the stock market, right? And you've heard so many different things like [00:17:00] this, and that's wise because people would pull their money out of the stock market to take advantage of those short term rates that were so high.
So anyway, so let's continue on to the banking. When you, when you deal with an inversion along those lines, eventually it corrects. Most of the time it's normal where the shorter term rates pay a smaller, or the shorter term bonds pay a smaller rate. So eventually it'll return to normal. And in most cases, when the inversion returns to normal, it's part of a recession.
And so what we're really is that we all got used to. to this 0 percent interest rate, right? The feds fund rate. Uh, and we liked having all of this fun money, right? And so I think basically we kind of all just want to get back there. I mean, am I wrong? Or I think everybody wants to get back there. The fed, the U S government.
Cause look at the amount of money, the U S government. It's, Oh, I know. And all their debt. just to [00:18:00] service the debt. And, uh, so yeah, everybody wants to get back to the salad days of low, low. Yeah. So that's why we have the inverted yield curve is that we expect it to go back down, that we would get this under control and then it'll go back down.
Yeah. And it typically does. So if you want to lock in, you know, the 10, 30 year, uh, treasuries, you can do that. But right now you got to ask, you know, questions. Yeah. What is the future? Yeah, exactly. Present value of future dollars. For me, I like those, I like those short term treasuries. Yeah. I would just never lock up.
I don't mean, I don't even like an investment that's longer than seven years. So, I mean, I'm just not, I don't know. That's just the way I think, I guess, because I know that things are going to go up and down, you know, all the time. Um, okay. So the, the inverted yield current, what else did we want to talk?
We're gonna talk about margin and how it affects margin. Yeah. I mean, it's like not, I'm sure not everybody here is, you know, deals with margin accounts. Yeah. [00:19:00] But I think it's interesting because people don't always think about this and that's why I think bringing up the commercial debt is, you know, cause we're all, Oh, you know, that company can afford the, the, the, the, I don't care, you know, I'll return this or whatever.
There's a lot of. Hidden things that businesses pay for at a higher rate than what a person does, correct? Yeah, it's like commercial, commercial flooring for, uh, it's the term for, uh, for short term debt that companies pay in order to buy inventory. Right. So. And right now companies are historically high as far as the amount of inventory they're keeping because all the supply chain issues they kept ordering, ordering, ordering.
And now they have warehouses full of things that they're actually paying to service. Right. And now all the shipping companies are, are kind of not empty, but they're not. Yeah, their rates are normalized. Yes, yes, they are. So yeah, it's just this continued, you know, butterfly flaps its [00:20:00] wings and causes a turnaround.
Right, and in ways that I think people don't necessarily realize. And that's kind of the point that I'm trying to make. So I think margin is a good way to think about that. Um, is that there is a whole world of people, you know, trading online and doing it on margin. Um, and it costs them more. And so then that will obviously affect the trades that they make, how often they do it, and if they do it at all.
Well, particularly, Big trading organizations, the institutions that actually do do that are like market maker. Yeah. Margin the granted, they get much better rates than the rest of us, but still going from 2 percent to 7 percent even has an effect on those decisions. Uh, so yeah, margins important. We talked about commercial debt.
And then, and also the, uh, short term treasuries, so. Okay, well, you want to skip, we can, uh, let's, you want to talk about the debt ceiling? Yeah, well, that's, that's kind of the next, uh, you can't really have this discussion without actually talking about it. I know, [00:21:00] so we think, I mean, I would love to get into if we should even be doing this whole debt ceiling dance.
And, you know, I, I think that might be another podcast, but, um, treasuries after the debt ceiling, but I feel like it's kind of already agreed to. And I mean, obviously by the time this comes out, then we're going to know the answer. Right. But based upon that, you know, the raising of the debt ceiling and they, the government's been kind of tightening, tightening its belt for months based upon this upcoming, uh, Uh, debt ceiling issue.
So they're continuing to spend from the treasury. So as soon as this has actually passed, they need to start issuing new treasuries. Mm-Hmm. to the tune. I've heard that this year will be a trillion dollar, uh, issuance. And so reminder that since they're going to issue those treasuries, they're trying to pull money out of the market.
So, or out of. Yeah, the treasuries are auctioned. So what happens is they put them out there and then based upon the amount that's actually bought, that [00:22:00] sets the rate that the government pays on that particular debt. But people buying or organizations buying that debt, need to actually choose those bonds over something else, such as the stock market or the real estate, basically anything else.
It's a choice. And as we said, you know, like you and I are making a choice to choose treasuries, but I don't have an unlimited supply of money. The Fed does, but I don't. So I actually need to make those choices and go, Eh, I can actually get 5 percent with short term treacheries and a lot less risk. So maybe I'll do that.
So it's going to have an effect on something else. And so do you think that it would have an effect though, because this is what I worry about. So it is, We're all buying treasuries for the first time, doing I bonds for the first time, and the government has to service all this debt at this very high interest rate.
What are your thoughts on that? Well, the, uh, you know, the [00:23:00] speculation is, because again, the ceiling keeps going up that I think I saw that in the early 2030s, then the interest payments on the debt will be higher than, well, no, it'll be higher than, uh, Medicare or Social Security. So it's, so debt servicing will be higher than these other social programs that then put money into the economy that's, that's then spent.
But you know, Wired as a society that we're growth based, is that spending needs to continue on an upward basis, you know, spend, spend, spend. Well, and back to the, okay, so let's say they sell all these treasuries at a high rate. Is there a way for them to later get them off? of their balance sheet? Yeah.
Well, I mean, like, for example, coming back to the Fed, the Fed has over 8 trillion worth of, uh, treasuries on their balance sheet. So because the Fed can just print money, put money into the, uh, [00:24:00] uh, and then take those treasuries out. That's quantitative easing. So that's the other big tool that the Fed has that they use during the financial crisis to go, all right, everybody's worried about these bonds.
So let's just give you cash and we'll take all these bonds off, off of you. So they've bought a lot of those bonds. It's actually approaching 9 trillion. So they're not worried about issuing these right now at a high rate? Because later on they can. So usually, like the Fed bought a lot of theirs when interest rates were at zero.
Because they, the first thing they did was drop interest rates to zero. And then, they started buying all these bonds. Quantitative easing came after the interest rates declined. So they bought all of these bonds at a very low interest rate. So coming back around to answering the question you asked a minute ago, which is what are they going to do with these things?
The, the Treasurer, the [00:25:00] Fed had always intended that they would just let them expire. So they would collect the interest payments from the government on that debt and then let, just let it expire versus. You know, and they started doing that to the tune of 50 a month, uh, that these bonds would think that they would do, is just let them expire, just pay them out and yeah.
The banks that got into trouble, that was exactly their hope as well. They were assuming that their deposit situation would remain static, and even though they did these. Uh, bought these bonds at 2 percent that they were just going to let them expire. And, but the problem is, is their deposit base went away.
So they needed to rapidly sell these things at the, uh, Oh, and so then they were selling them at like nothing, but the fed doesn't have to do that. Right. So they just need to let these things actually expire. And then they get the payment from the, uh, the treasury for the final amount and they're out. So.
Okay. So you don't think, think that this is an [00:26:00] issue? I don't, you know, the games, the games eventually it will be, you know, it's a big game of hot potato. Everybody's aware of that sooner or later. Right. Something's going to, uh, tip, but they've been saying this for decades. Even, even in the financial crisis, we were, we were in trouble for like a hot minute.
And then we, the, I say, we being the United States, you know, that's a Royal we, uh, We then very rapidly became the least dirty shirt. Uh, so everybody was just like, all right, what do we do? Huddle up to, uh, treasuries and the U S dollar. It's usually what happens. Is that going to be the case forever?
Probably not this growing debt, but I don't. Yeah. I don't think it's, I don't think it's ending anytime soon. Right. But for now, everybody knows that it's affecting the mortgage rates. the car rate. I mean, basically just how much you can borrow. Yeah. So if you're getting hammered with interest rates on, you know, what you can buy, if you want to [00:27:00] finance things and getting hammered by inflation, you're going to spend less because you're going to have less to spend.
You know, I've seen everything from my, you know, Homeowner's insurance going up to gas prices to, you know, we're just, you know, HOA, everything's just going up. They're digging into our pockets and every Well, even my pool guy, he had to raise his rates. I pay 130 and he's raising his rates to 170 because of gas prices.
Yeah. So, and these prices are sticky, they don't come down. So it's less money that we have to spend as a consumer. And then eventually, you know, everybody's going to run out of rope and have less money to spend.
So I, I think even though interest rates, I think we're in the later part of the interest rate, Raising.
Yeah, I agree. I don't think they're going to go that much higher, but I think we're like in the third inning of the overall effect of this. I think they're worse. We've already seen glimpses of it [00:28:00] with the, uh, the bank failures and, you know, an interesting stat on the bank failures is adjusted for inflation.
And by dollar amount, not number of banks, but by dollar amount, more banks have failed this year than during the global financial crisis. Nearly a half a trillion dollars worth of bank failures. And, you know, they're doing a good job of really keeping a lid on that. People, you know, it's only been a month or two and people aren't really even talking about it anymore.
Yeah, but it has, uh, woken people up to, uh, how much they're insured at each bank and all of that, which I think is good. People need to be aware of that because we get into good times and then people just, you know, Oh, it's going to stay good forever. And we've had glimpses, but the, the other shoe, so to speak, hasn't fallen.
I think the, uh, you know, Mark, you know, looking at Uh, you know, the S& P 500, I look at very closely, it's been largely a dial tone this year. Yeah, there's not [00:29:00] a whole lot of movement. Yeah, and that's what I feel like all the people that, Uh, because again, I call you sometimes and there's other people I call.
I read some newsletters, you know, am I crazy that there's not a lot out there that I'm interested in buying? And it does, it feels like we're just in this like huge holding pattern. Um, but by the other thing is that I mentioned when we were talking earlier is buying is one side of the equation. You got to factor these things out when to sell, uh, and.
You know, and I, what I think is going on is, you know, buying a slow, slowing down. We haven't seen the rapid selling. No, everybody's just kind of holding it again, holding pattern. Right. Whereas I thought that's what it was exciting about at least having some 5 percent treasuries. I was like, ah, Finally, something to be excited about or, you know, cause it's, I'm used to having, you know, there's a real estate transaction there, you know, there's like some things or some products to be excited about.
Um, and the last year there hasn't been a whole lot of that just because we had such low [00:30:00] rates for such a long time. And it's like, everybody's getting into real estate. Everybody's getting in the stock market, you know, everybody had savings. You gotta be, I think more than anything, you have to be patient right now.
And the thing is, it's like, You know, as you pointed out at the beginning, I haven't had this like 30 years, you know, this isn't my first rodeo. Do you want me to cut that out of your intro next time?
For 10 years. He's new on the scene. But, but yeah, they, this isn't my first rodeo or yours, you know what I mean, but, but having seen this before and in my experience having a track record, I generally do pretty well on a good downturn to the point that I kind of like a good downturn, but the, the key there is I'm, I don't over lever anything.
I don't get out over my skis and I usually like to keep some, like, especially now, try to keep some dry [00:31:00] powder so that when, when there is a fire sale, you can go shopping. I know, exactly. Well, and I think once you're burned, then you kind of learn your lesson and you realize that when there is a downturn that, I mean, cause your profit is made on the buying, what you buy something for.
And just like a house, it's the same thing. It's like a stock. I mean, what you buy something for is really determines how much you make on it. I mean, that's, you got to make a good buy. Um, and a lot of times you have to wait for that. And I don't think that people have a lot of patience. They feel a lot of guilt for holding their money in a savings account, especially all these years, right there.
It was paying, you know, 0. 5 percent or something. I got so many calls about, I need to do some of this money. I need to do something with this money, but there wasn't really anything significant. Safe because interest rates were so low, you had to take a lot of risk in order to get that return. Um, whereas now we can buy treasuries for 5 percent and you're not keeping up with inflation, but you're still making 5 percent and you're, you're doing pretty good.
And even if they get it under control, you've locked that in for a few months. [00:32:00] So, yeah, it's a great way to tread water financially while this stuff sorts out. So I think, you know, part of the message is just be patient. This needs to still unravel a bit. Yeah. You don't want to be just like pushing out your money out the door to just buy something so that it's invested in something.
Cause everybody's always like, I want my money to make money. I want my, and just not all your dollars are going to be making money all the time. Like sometimes it needs to be. Um, I mean, you can do the treasuries and you can make a little bit, but, you know, sometimes it needs to sit there waiting for the right buying opportunity.
Do you feel the same way? Absolutely. Yeah. So, and it's coming. Yeah. Yeah. And it'll be there and the right thing will pop up and it'll be exciting. And that's just kind of the way investing goes. And we'll be talking about it. Yeah. And we will be talking about it. And I cannot wait. I don't usually talk about the next episodes, but Andy and I have an idea for the next episode and I'm so excited about it.
So, uh, Andy is going to be on again and, uh, we're going to have a good time. Am I missing anything about the Fed that you really wanted to get in? No, that was the main stuff. [00:33:00] Yeah, it's like, there's, you know, there's a lot that goes into that, you know, in the history of it and everything like that, but the main thing.
People need to pay attention to is rates and how they control the money supply. How much money are they holding on to or releasing?
And just as like a surprise question, what do you think about the people that want to like abolish the Fed? What do you think about that whole line of thinking? Cause, um, I know that was a big thing for a while.
Audit the Fed, you know, do all of those. Yeah. I mean, The audit, the Fed thing is kind of interesting. You know, they do a lot of their decision making behind closed doors, if you will. Well, it was even created behind closed doors. When you read about the history of it. That goes back into, you know, 1910, that secret meeting on Jekyll Island and all of that stuff.
It's, I mean, it's just, it's just a great story, you know, but, uh, but you know, the Fed by and large is controlled by Congress. I know. And so that's why I think. It was formed by Congress. It can be destroyed by Congress, but, And they report to Congress. Yeah. [00:34:00] And Congress could actually vote to abolish the Fed.
Uh, but by and large, I mean, we're, we're massively credit driven society. And I think a lot of our, uh, a lot of our benefits in society, you know, our quality of living is better and things like that are from access to capital and credit. Yes. And. You know, and a lot of the growth that we experience and have experienced as a country since the seventies is because of credit.
And so I don't, I just don't think that the fed can be abolished. And I, I don't know about, I mean, we all know that it's more spending. I mean, we all know what's going on and that they're, they're paying money on the debt and, um, this is what it is. And, um, and they're trying to reign in these, these violent, uh, Exactly.
And that's why I think the Fed is good and that it's always the goal is to, the goal of the Fed is to always be trying to like [00:35:00] plug up these holes. So like what we saw with these banks earlier this year, they're trying to then, um, fix that problem, that hole in the system so that we don't see it. Just the same thing like what they did with the mortgages.
Um, in 2008, you know, now there's a lot, it's, uh, much more stringent rules around it. And I think the same of what we talked about with crypto. Uh, you know, we, a lot of people, Oh, crypto is just a sham. Well, it's not a sham. It's just that it took years of our financial system to get stable. It's going to take the same thing for crypto.
Yeah, absolutely. You know, these things that continue to have oscillations and things like that. And the other thing is whenever somebody says, well, let's do away with this, whatever mechanism it is, you know, and I'm like, and then what, you know, it's like, they haven't really thought about, well, what do we put in its, in its place?
And, you know, and most of the stable governments in the world have central banks. Yeah. Uh, is [00:36:00] it the right answer? I don't know. We're evolving. I know. Yeah. So I'm on, I'm on your train. So I absolutely agree.
So, well, thank you for being on again. Always a pleasure. Yeah. Yeah. Conversation. Yeah. Good. I love them too.
Um, and you guys remember to subscribe and leave a review. Um, and we will see you next time. Thank you so much for listening.
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