Rebirth 79: I opened a bank in the United States

"Perhaps Mr. Black believes that the Ford government can revitalize the economy. In addition, the Federal Reserve is issuing a large amount of money. If it does not lend the money out, it will only keep losing money."

Belief in the Ford government is better said than belief in the so-called Great America. Before the 1970s, especially from the 1950s to the mid-1960s, the "golden decade" that lasted for nearly 20 years was undoubtedly an important factor in the rise of the American economy.

Time node.

In the global context of full recovery of the post-war economy, the United States, which had already reaped all the war dividends through World War II, needs money, money, and people! Coupled with the so-called "European Renaissance Plan," various

There is no need to worry about having nowhere to dump the output of the plant.

The U.S. economy has taken off, and Carter's cheap father, Old Black, has also taken off by taking advantage of this east wind that has been blowing for nearly two decades. From a poor boy in an agricultural state, he has become bigger and stronger step by step, creating new...

There is nothing more that can be done, the storm has passed, and Old Black, the pig who stood in the storm and was blown away, has also given up. However, Old Black has been enjoying himself for twenty years, and he is considered good enough. But he left this look

Leave this mess to yourself, isn’t this an inappropriate example of a trap?!

If I didn't "take care of my wife and children, I'll take care of them", I would feel a little sorry for my own brain cells that would die.

"Forget it, let's not mention him! Can we still borrow money from Portnewt Bank and Monza Bank?"

Carter rubbed his swollen temples and asked haggardly.

The Porter Newt Bank and the Monza Bank were both small banks like mine in nearby cities, and they had often lent funds to each other in the past. They were barely acquaintances in the industry, and since their own money was not enough, Carter naturally took the idea.

on them.

"Mr. Black asked before. The current situation of their two families is not particularly good. They can borrow money, but the interest rate is very high."

"Very high? How high?"

Carter raised his eyebrows and looked at the calendar on the wall again, his eyes getting brighter and brighter.

There seems to be a way to break the situation!

"Old Porter in Portnewt wants 12 points of interest, so he can lend us $200,000; Monza wants 11.5, so he can lend us $250,000. With this interest, we might as well borrow from the Federal Reserve. It's like robbing us of money.

!”

Goodman angrily complained about the two colleagues who were taking advantage of the situation, criticizing them for disregarding their past friendship. He thought about how they were in trouble when Old Black was around, and how he could help them overcome the difficulties...

"Wait, wait! Let's stop with the fairy tale of mutual help. What is the Fed's federal funds rate now?"

As a banker, when your colleagues are in trouble, you don't go to annex and develop them, but you actually give them low-interest loans to help them tide over the difficulties...

As Carter learned more about Old Black's past, he became increasingly unable to complain about this cheap dad. Interrupting Goodman's complaints, Carter asked directly.

If I remember correctly, in the next few years, the federal funds rate will rise to its highest level in history. Is it 20? Or 21 or 22...

Carter regretted not paying attention in class, but with this information, it was enough! Whether it was 20 or 22, it was much higher than the interest rate offered by Portnewt or Monza Bank.

"The federal funds rate... is now 10.52%! Carter, are you planning to borrow money from the Federal Reserve? Given the size of our bank, it may be difficult to borrow much..."

Ten point fifty-two percent?!

Carter turned his head for the third time and looked at the calendar on the wall. It was June 1979. If the butterfly effect did not exist, then two months later, Paul Volcker, the 12th Chairman of the Federal Reserve, would take office.

The serious economic stagflation crisis in the United States was contained in the hands of Volcker. Similarly, the federal funds rate that hit a record high was also born in the hands of this boss.

Volcker's solution to the crisis is actually very simple and crude. It is to desperately raise the federal funds rate. This is undoubtedly an extremely tight monetary policy.

It can be predicted that as the federal funds rate increases, the cost of borrowing money for banks will increase indefinitely. Banks will no longer be able to freely release loans as in the past. In the same way, the interest that banks have to pay when borrowing money

If it is higher, then when they borrow money, the interest charged will naturally be higher.

When the inflation rate remained high in the 1970s, most ordinary Americans developed the habit of spending first and repaying later. Because if you save money first and then spend it, you may have saved money a year ago and used it to buy things.

The money you spend on a car can only be used to buy a motorcycle in the second year. But if you take out a loan to buy a car first, you can only buy a motorcycle in the second year!

No one is a fool. Under such a background, who will save money? If there is no deposit in the first place, then raising the loan threshold and raising the interest rate of the loan will force people not to borrow money, and they will not be able to borrow money. Then they will pay back

How to spend money? When you receive your monthly salary, more than half of it must be repaid for the previous loan, but you cannot get a new loan, or you dare not take one...

Artificially and forcibly reduce the consumption demand of the public, and slap the amount of money in the market to the extent that it matches the supply. When the amount of money matches the supply, will inflation be curbed soon?

The logic is such a logic. As for how many banks will close down, how many factories will be closed, or even how many homeless people will appear on the streets during this process, Carter does not know, and has never paid special attention to this aspect.

But compared with the current high inflation, the next few years will obviously be more difficult. For small banks and small businesses like ours, it is an existential crisis.

Crisis, crisis, where there is danger, there is opportunity!

If I rush to borrow money at an interest rate of about 12% before Volcker comes to power, and then lend it out when the federal funds rate rises, the difference will be...

What’s even more beneficial is that these days, there is almost no such thing as installment payment for loan repayments. They are all paid back in one lump sum with interest after maturity.

In other words, during this period of time, when you get the money, you don't even have to pay interest. If you borrow the money for five years, the interest will be about 50%.

Borrow 100,000, and pay back 150,000 in five years! When the fund interest rate reaches the highest point, you can lend out 100,000, and others will have to pay you back 140,000 in two years... And this is still the money

The situation of keeping it in your hand for three years and then lending it out...

After all, Carter once studied economics. Although Carter had never worked in a major investment bank such as Goldman Sachs, he knew it.

That’s not how accounts are calculated! That’s not how money works!

If you operate with foresight, you will definitely make a profit. The only risk is whether Paul Volcker will take office as the 12th Chairman of the Federal Reserve in August 1979, as happened in history.

!

Carter asked himself in his mind:

Bet?!