The US Central Bank (FED) has again taken measures to stimulate the US economy. This week, the FED has already pumped billions of dollars into the banking world twice. The interest rate has also been reduced by 25 basis points, or 0.25 percentage point, and now varies between 1.75 and 2 percent.
FED and ECB do the same
On July 31 we wrote that for the first time in the 10 year existence of bitcoin, the American FED has lowered interest rates. Barely two months later and we can write a similar message. The Fed has lowered interest rates again, an aggressive movement similar to that of the ECB (the European Central Bank).
Many analysts expect the FED to lower interest rates even further before the end of the year. That also seems to say the boss of the FED, Jerome H. Powell:
There may come a time when the economy is weakening and we have to cut back more aggressively. We do not know. We are going to look at things carefully, we are looking at the data and the evolving situation.
Trump is not satisfied
The American president Trump wants more extreme measures, including a further reduction so that interest rates become negative. We are of course familiar with that in Europe. The ECB already uses a negative interest rate. And hardly anyone in the Netherlands is happy with that.
European Central Bank, acting quickly, Cuts Rates 10 Basic Points. They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports …. And the Fed sits, and sits, and sits. They get paid to borrow money while we are paying interest!
– Donald J. Trump (@realDonaldTrump) September 12, 2019
Even after the FED has lowered interest rates and promised to pump 128 billion into the financial system, Trump is dissatisfied.
Jay Powell and the Federal Reserve Fail Again. No “guts,” no sense, no vision! A terrible communicator!
– Donald J. Trump (@realDonaldTrump) September 18, 2019
Nightly loans
About that $ 128 billion, which is intended to keep the interest rates that banks charge each other between 2 and 2.25 percent. This concerns short-term loans that often have to be repaid within a day. The interest on these loans rose to 10 percent and the FED anticipates that this money flow will come to a halt. By spending billions of dollars, the FED wants to keep this interest rate low. In English this is called the overnight lending market.
Every night, banks check whether they have enough money to guarantee their bonds. If not, they borrow from other banks. Many banks did not have enough money in recent nights, which made borrowing from each other increasingly expensive. If you want to know more about this, you can follow the twitter thread below.
Okay, for everyone who is confused: Here is a quick-and-dirty explaining thread on the overnight lending market that the Federal Reserve just bailed out.
– Heidi N. Moore (@moorehn) September 18, 2019
The total market capitalization of bitcoin
Due to all the financial injections, the central bank has seen its reserves fall this year by 171 billion dollars. That is almost as much as the total market capitalization of bitcoin. That is currently 177 billion dollars (160 billion euros). This was higher, but the rate collapsed last night within four hours by four percent.
According to The Street, the US budget deficit is $ 1 trillion for the second time this year. It seems as if America, and indeed the rest of the world, is in a vicious circle of borrowing money and reducing interest rates in order to stimulate its own economy and to chop other countries. Many analysts expect the 2008 crisis to be inevitable.
This is the chance for bitcoin to show why many see this crypto as a safe haven for storing value.
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