Well, they’re not calling it “Black Tuesday,” yet.
Bank of America Profit Plummets
Markets in Flux After Fed Move
Investors Abroad No Longer Feel Immune From U.S.
Driving from my Portable Empire West headquarters towards the highway, I stopped and took this pic. And yes, the blue was really that blue.
The Fed threw their hardest pitch, lowering Fed-Funds rates by 3/4 point. The markets responded by continuing to tank- although the rate of the fall was slowed by the rate drop.
What does that mean? Let’s go to Wikipedia:
U.S. banks and thrift institutions are obligated by law to maintain certain levels of reserves, either as non-interest-bearing reserves with the Fed or as vault cash. The level of these reserves is determined by the outstanding assets and liabilities of each depository institution, as well as by the Fed itself, but is typically 10% of the total value of the bank’s demand accounts.
For example, assume a particular U.S. depository institution, in the normal course of business, issues a loan. This dispenses money and reduces the bank’s reserves. If its reserve level falls below the legally required minimum, it must add to its reserves to remain compliant with Federal Reserve regulations. The bank can borrow the requisite funds from another bank that has a surplus in its account with the Fed. The interest rate that the first bank will pay to the second bank in return for borrowing the funds is negotiated between the two banks, and the weighted average of this rate across all banks is the effective federal funds rate.
The nominal rate is a target set by the governors of the Federal Reserve, which they enforce primarily by open market operations. When the media refer to the Federal Reserve “changing interest rates,” this nominal rate is almost always meant. The target is generally a range, as the Federal Reserve cannot set an exact value through open market operations.
Another way banks can borrow funds to keep up their required reserves is by taking a loan from the Federal Reserve itself at the discount window. These loans are subject to audit by the Fed, and the discount rate is usually higher than the federal funds rate. Confusion between these two kinds of loans often leads to confusion between the federal funds rate and the discount rate. Another difference is that while the Fed cannot set an exact federal funds rate, it can set a specific discount rate.
So, in the very short term, banks can pretend to meet their liquidity requirements by borrowing at a reduced rate.
This is good. That means when you go to the bank to get a car loan, or (god forbid) a house loan, the banker won’t throw stuff at you. He might even give you a loan.
Talking to my neighbor Dennis, who is a home-grown genius about solar power, water systems, etc., I was going to drive to town and the sun started going down. I looked to the west and said, “You’ve just got one channel, but it’s a good one. And you’ve got a really Wide screen.”
In my opinion- and I’m certainly no expert, I’m just a guy with a degree in business who reads the papers- Asia is the place to watch. China is holding a whole lot of U.S. debt. In return, the U.S. buys a lot of their stuff.
If our debt becomes less valuable, the value of the debt China is holding will decrease.
If we quit buying their stuff, their income will decrease.
Well- our debt is becoming less valuable, people are spending less money, and the Asian markets are leading the dive to the bottom.
A couple of days ago, I went to Terlingua to celebrate getting the water going.
By the way, the idea of me actually grabbing big wrenches and screwdrivers, adjusting propane flow, reading guages, and getting a water well to work is about the least likely thing that has happened since the beginning of time.
The odd thing is- it’s fun. I had no idea.
Anyway, after watching the Patriots kick some butt and SMOKING A CIGAR WHILE DRINKING A BEER IN A BAR (sorry. you can’t do that in Austin anymore.) I took the road that goes behind the Terlingua ghost town. The pic above is one of the home-sites that I drove by. There are some very isolated homes out in the desert- but, they’re just a five-minute drive from great restaurants, beer and football, and conversation.
I’m not recommending anything to anybody, by the way. Right now, I’m having fun exploring alternative ways of living. There are people living comfortably on virtually no money. With just a little bit of money, you can have fiber-optic high-speed internet access, telephone, and all the comforts of the city.
I think that’s fascinating- but I’m just reporting. It’s important, I think, to be aware of as many options as possible.
Now, I’m saying goodbye to the desert and heading back for the hill country.
My goal this trip was to get the water going, and that’s done.
Next trip, we’re going to permanently install the solar panels and batteries and connect the wiring. I’ll trade my big wrench for a Volt-Ohm meter. Luckily, Dennis is going to be on staff to help me with this project- that should knock the learning curve down to a manageable height.
After that, it’s just aesthetics. Do we rip out the linoleum floor? Do we trash all the cheap paneling on the inside? I know how Betsy will vote, LOL.
In the meantime… you can get a head start on your portable empire building HERE.