EconAir

  PRELIMINARY SUMMARY OF FISCAL 2024 BUDGET The deficit in fiscal 2024 was around $1.8 trillion, about $5.0 trillion in revenue and $6.8 trillion in expenses. Interest on the national debt this year is around $960 billion, over twice the interest on the fiscal 2021 budget. Interest expense this year passed outlays for the military. Leaving aside Social Security and Medicare, interest expense is about 20% of total budget outlays. Interest expense is about half the budget deficit.   The fiscal 2024 deficit was 6.4% of GDP.  SOME BASIC DEFINITIONS AND A LITTLE DETAIL Some basic definitions for people in government suffering from political amnesia:   Deficit.    The difference between the federal government’s spending and its revenue in one fiscal year.  The fiscal year starts on October 1.  So fiscal year 2024 started on October 1, 2023. You know right away this is going to be confusing. Debt .  Short for national debt or ...

  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 ...

THE ECONOMICS OF FINANCIAL MARKETS MARKET-MAKERS, BIASED INFORMATION, AND FORECASTS This tutorial will look at financial markets and how they actually function.  There are two general theories about how financial markets work. The first is the Efficient Market Theory, which assumes all decision-makers are rational – they have access to information, can analyze it, and make investment decisions. Strangely, a major conclusion is that investors cannot predict stock price movements, which are random. The second is Behavioral Finance, which assumes that investors are irrational – they have a number of biases and are influenced by the markets’ past behavior. Both theories based on this supposed distinction that “explain” financial price behavior are irrelevant. What is left out of theoretical models of financial markets is how financial markets actually operate. Between buyers (investors) and sellers (including issuers of new securities), there are market makers like brokerage firms, man...