EconAir

  The Red Queen's Race TWO DEFINITIONS   Fed funds rate .    The Fed funds rate is the interest rate banks charge other banks that borrow their excess reserves. It is a very short-term (overnight) rate. An increase in the Fed funds rate increases the cost of capital of large banks (net borrowers) and puts pressure on these banks to raise their lending rates. A change in the rate also changes the rate charged by other sources of short-term funds.   The Fed funds rate is the most watched interest rate in the United States and probably the world. It is not set by supply and demand in financial markets. It is set (fixed) by the Federal Reserve Bank (the Fed), America’s central bank.    The Fed funds rate determines or heavily influences almost all other short-term interest rates in financial markets. It also indirectly influences many other longer term interest rates. It summarizes how the Fed views the economy and near-term changes. It is at the heart of ...

  At current tax rates, in every year over the next 10 years, the deficit - the increase in the national debt - will be greater than the increase in revenue. A ll the increase in revenue will just pay for the increase in interest expense.   CBO forecast is probably optimistic. By law, the forecast cannot include a recession or any other unusual adverse event like future viruses. Based on past experience, it is likely that at least one recession will occur in the next eight years. In addition, the Trump tax cut is set to expire in 2025. If it is renewed, this will add a few trillion to the forecasted deficit and national debt.   The forecast was made before the new Biden administration spending programs were passed and student debt forgiveness was announced. The spending bills indicate that the cost of switching to renewables, modernizing the electricity grid, and decarbonizing is going to be very high in the future. Related, the cost of containing the consequences of past...