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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.
Home / Markets / Innovation
Monday, December 31, 2007
Your Body May Be the Next Source of Energy
Donna Fuscaldo
FOXBusiness
New York--The sun and wind aren’t the only natural sources of energy. Human beings are being used to power up devices in developing
nations.
Potenco, the Alameda, Calif.-based start-up, is developing a pull-cord generator that can power lights,
cell phones and even laptops by using the energy expended to pull the cord. The generator is targeted at developing nations
where energy isn’t that easy to come by, but can also be used in the Western world during activities like camping.
“There
are 2 billion people around the world that have no access to electricity,’’ said Colin Bulthaup, chief executive of Potenco.
“One out of every three people has never switched on a light in their life.”
The pull-cord generator fits in the palm
of your hand, and with your other hand you pull the cord, which generates the energy. A minute of pulling will give you 20
minutes of talk time on a cell phone, one hour of ultra-bright LED-based flashlight use and three hours of play time on an
iPod shuffle. The extra calories needed for a full day’s worth of light or cell phone use is 20 to 50 calories, said
Bulthaup. In developing countries where starvation is rife, expending too much energy could be detrimental.
There
are other products on the market that generate energy via human output, but Bulthaup said hand-cranked products have a smaller
crank arm, which means your movement isn’t that broad, and thus gives off less energy per crank. With the pull-cord generator,
you make large movements when pulling, which enables you to give off more energy with less output, said Bulthaup.
Potenco
is a spin off of Squid Labs, a venture-technology company formed more than three years ago by four Massachusetts Institute
of Technology graduates. Squid Labs has spun off five companies, with Bulthaup in charge of Potenco. One of the goals of Squid
Labs was to identify the “lowest-hanging fruit that would have the largest global impact,’’ said Bulthaup, noting that the
key fundamental need is the lack of power in developing countries.
While the emerging markets may not seem like the
best place for a start up to launch a product, Bulthaup, said there is money to be made in some of the world’s poorest nations
thanks in part to microfinancing. Microfinancing is the practice of giving very small loans to people in impoverished nations.
“Microfinance institutions are more prevalent, which creates capital that’s then available for purchase of items,’’
said Bulthaup. “A lot of the regions markets are very liquid…the trick is try to make the product cheap enough.”
While
hand-cranked or pull-cord power generators may be a bit gimmicky in the developed world, there is a real need in emerging
markets.
“In third-world countries, generators are used several times a day, not just once a month,’’ said Richard
Doherty, research director at technology market research firm Envisioneering. “Brazil, Russia, India and China will see hundreds
of millions of generators in the next few years.”
Still, in some developing countries, crime and graft is rampant,
especially with commercial products, which could prevent the pull-cord generators from making it to the intended parties,
said the analyst.
Either way, Doherty said launching a green product in emerging markets goes a long way in terms
of raising venture capital or angel funding in the U.S. As for its viability in the U.S., Doherty said given Americans increasingly
consider themselves green or “green leaning” the idea of expending a few minutes to charge a cell phone or iPod provides people
with a lot of satisfaction.
Potenco will start manufacturing its pull-cord generator in the second quarter
of 2008 for developing nations and is aiming to sell it in the U.S. by the summer. Bulthaup noted the price has yet to be
determined but that it will be very affordable in the developing countries and more expensive in the U.S.
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