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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
Friday, February 29, 2008
Coming By 2010: An Air-Powered Car That Costs Less Than $18,000
Donna Fuscaldo
FOXBusiness
New York --Taking a page from Formula One racing, an upstate New York start-up will be manufacturing the first air-powered car in the
United States.
The Air Car, which is expected to sell for less than $18,000 and emit zero to low CO2 emissions is the
brainchild of Guy Negre, head of French-based Motor Development International and a former Formula One race car engineer.
The four-door, six-seater, 75-horsepower vehicle boasts an estimated 100 miles per gallon and can go more than 90 miles per
hour. Zero Pollution Motors expects to start shipping the vehicle, which will have all the customary standard equipment, in
early 2010.
“With Formula One racing, you use compressed air for fast starts and Negre realized its something that
can be used to power engines," said Kevin Haydon, communications director at Zero Pollution Motors. “This really helps drivers
break away from the oil dependency that’s inherent when driving gasoline vehicles.”
Motor Development International
introduced the first prototype air-powered car about ten years ago. That car ran on air that was compressed into a tank at
a high pressure, enabling the vehicle to run on the air alone. That prototype gave users 100 mpg at speeds of about 60 mph.
Recognizing the limitations with the first prototype, the company came up with a dual engine model or an air powered hybrid
that it will manufacture.
“This actually has a secondary energy source," said Haydon. “There’s the compressed
air tank but also a secondary engine source which could be bio-fuels, ethanol or conventional gas.” Under 35 miles per hour,
the car will run on compressed air alone. When speeds surpass 35 miles per hour, a secondary energy source of gas or bio-fuels
kicks in to heat the air as it enters the engine. The result is increased range. If the secondary energy source is an eight
gallon tank of fuel or bio-fuel, the car is expected to achieve an 800 to 900 mile range. Zero Pollution Motors envisions
having air fueling stations similar to the bio-fuel stations that are started to crop up around the country.
“The
market is ready for this ever since oil reached $100 a barrel," said Haydon. “There’s tremendous interest in alternative-fuel
vehicles.” According to Haydon, the Air Car will likely appeal to urban dwellers and the fleet market, which is used to slow
speeds because of traffic. He said it will also be attractive to suburban and rural drives because of the dual engine.
The
rising cost of gas, coupled with consumers concerns over global warming, has sparked heightened interest in cars that aren’t
so beholden to the oil industry. Toyota’s (TM) Prius hybrid car is enjoying strong sales in North America, even while its
other vehicles in the U.S. are taking a hit. In January General Motors (GM) announced it invested in ethanol maker Coskata,
underscoring the importance car makers are giving to alternative energy sources.
Given that Zero Pollution Motors
is all about curbing pollution, the company is taking a unique approach to manufacturing the car in the U.S. Zero Pollution
Motors will set up small factories in the U.S. that will produce a maximum of 8,000 vehicles each year. The plants will run
two shifts and also act as the dealership or distributor.
“Part of the philosophy is making this an eco-friendly operation,"
said Haydon. “There’s a tremendous amount of CO2 emission involved in manufacturing and distributing vehicles.” Haydon noted
that having the vehicles assembled and distributed all over the world adds a “tremendous” carbon footprint, which the company
wants to avoid. A carbon footprint is all the greenhouse gases produced because of a person or a company’s activities.
Orders
for the cars will be placed online at www.zeropolloutionmotors.us and customers can either choose to pick it up at the plant
or have it shipped. While shipping the car does have a carbon footprint associated with it, Haydon said that’s reduced because
the deliveries will be of a short distance. Zero Pollution Motors plans to have the first plant built in the Northeast next
year. The company is aiming to have a plant in regions where there are over 110,000 new car registrations annually.
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