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We like to think that when we deposit a dollar at the bank, it goes into a big vault and we can pull out that same dollar at any time. But that¿s not how the U.S. banking system works. Banks take that money and invest it to make money themselves, so cash gets spread around. This, naturally, leads to a big risk: What happens if those investments go sour? Well, you¿d be out of luck. You can¿t get your dollar back.
The Federal Reserve doesn¿t like that scenario, so it prohibits banks from putting all the cash it has on deposit on the line. In fact, the Fed forces banks to keep a portion of their assets at the Federal Reserve itself, to make sure that some of your assets won¿t get squandered if the bank¿s bets go south. These are called ¿reserves,¿ (hence, Federal Reserve. Got it? Good), and usually amount to 10% of the total cash kept in checking accounts.
These reserves are never exactly 10%, and banks like to keep a little extra in reserve ¿ not, as you might think, to make you more comfortable that they¿re in good financial shape, but rather so they can take that excess and lend it to other banks and make money off it. (They¿re banks, they can¿t help themselves.) The rate at which they make these loans is called the Federal Funds rate, which is set by the Federal Reserve¿s Federal Open Market Committee.
When you hear people chattering about how the Fed cut or hiked interest rates, this is what they¿re talking about: the interest rate banks can charge for lending money from their reserves. This begs the question: If these are essentially loans between banks, why is the Fed Funds rate so important for the rest of the economy?
Well, simply put, because loans make the financial world go round. Bank A lends Bank B $10,000 at a Fed Funds rate of 5%. Bank B then lends out $10,000 to a small business at 7%. The small business then takes that money and expands the business and hires new workers. Now someone is employed, Bank B has made interest off the loan, and Bank A is the richer for making it all happen. It¿s perhaps overly simplistic, but you get the idea. When you want the economy to thrive, you make lending cheaper.
Of course, sometimes you don¿t want the economy to thrive. In fact, you might want it to cool down, mostly to avoid money flooding the system and causing inflation. In that case, the Fed raises interest rates, making it difficult to lend or borrow.
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Friday, June 27, 2008
Homeland Security Committee Introduces Bills to Enhance Nation's Preparedness and Response Capabilities
Comtex
WASHINGTON, June 27, 2008 /PRNewswire-USNewswire via COMTEX/ ----Rep. Bennie G. Thompson (D-MS), Chairman of the Committee on Homeland Security, Rep. Henry Cuellar (D-TX), Chairman of the Subcommittee on Emergency Communications, Preparedness, and Response, and Rep. Al Green (D-TX), Member of the Committee on Homeland Security, announced the introduction of three bills to enhance the nation's preparedness and response capabilities.
H.R. 6425 - Sponsored by Rep. Thompson (D-MS) - The Homeland Security Relief Corps Act of 2008. This bill establishes a Relief Corps within DHS to respond to disasters whether natural or manmade.
Rep. Thompson released the following statement along with introduction:
"With the floods in the Midwest and the other disasters this nation has seen since Katrina, it is time for citizens to get more involved in disaster response and recovery. This bill provides a path to the rebuilding of the Gulf Coast and provides hope for quicker recovery for residents of other ravaged areas."
H.R. 6392 - Sponsored by Rep. Cuellar (D-TX) - The Alerting Lives Through Effective and Reliable Technological Systems Act of 2008 or the ALERTS Act of 2008. This bill expands the emergency alert and warning system within the Federal Emergency Management Agency (FEMA) and provides Americans information before and during critical emergencies.
Rep. Cuellar released the following statement along with introduction:
"This bill will allow Congress to ensure that the Department of Homeland Security reduces the number of lives lost by utilizing next generation technology and all available modes of communication," said Cuellar. "It will provide critical homeland security information to as many people as possible, and in all locations--whether in school, on the job, or on the highway."
H.R. 6395 - Sponsored by Rep. Green (D-TX) - The Department of Homeland Security Preparedness, Research, and Education Program Act of 2008 or the DHS PREP Act of 2008. This bill establishes a fellowship program within DHS to conduct research and subsequently develop best practices for disaster response and recovery.
Rep. Green released the following statement along with introduction:
"The DHS PREP Act will provide opportunities for a diverse group of students to gain valuable experience at the Department of Homeland Security while enhancing our understanding of post-disaster recovery," Rep. Green stated. "It is often said that when we ignore the lessons of history, it is doomed to repeat itself. We must extract as much knowledge as possible from the devastating aftermath of disasters such as Hurricane Katrina to ensure that our nation is better equipped to respond to future disasters and the mistakes of the past are not repeated."
FOR MORE INFORMATION: Please contact Dena Graziano or Adam Comis at (202) 225-9978.
SOURCE Committee on Homeland Security
Copyright (C) 2008 PR Newswire. All rights reserved
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