How the Economic Machine Works
It seems like almost every day now we hear a new story about the Federal Reserve. It used to be that we rarely spoke about them, but now it is a constant stream of talking heads trying to guess what they are going to do next: Are they going to raise rates? Are they going to raise them too fast? Are they going to delay raising rates?
So why is the Federal Reserve so important? The very simple answer is that they control the rate at which American banks can borrow, which impacts interest rates around the world. This means that they end up affecting what rate you and I can borrow at, whether for a home, a business, or whatever. While that seems pretty simple, it has major implications for our economy.
Below is a video that I stumbled upon a couple years ago by Ray Dalio. Dalio runs the largest hedge fund in the world and in this video he gives a basic summary of how the economy works and the role of the Federal Reserve in it. While that might seem a bit daunting, he does a very good job of breaking it down in a way that is easy to understand. It is a bit longer than the videos we typically produce (30 mins) but well worth the time if you want to understand what drives our economy.