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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
Tuesday, October 23, 2007
Innovation: Higher Ed Offering Green Degrees
Donna Fuscaldo
FOXBusiness
New York --Being schooled in green could give students more greenbacks.
With rising oil prices and concerns over global warming weighing on Americans' minds, universities and colleges across the country have been rolling out degree programs in everything from alternative fuels to solar power.
Demand is strong among students wanting to pursue a green degree -- and not only for altruistic reasons. Professors at the schools offering these degree programs say corporate interest in green is resulting in demand for more experts and in turn interest from students.
“Students and faculty are increasingly of the opinion that government regulation alone is not the right way to go,’’ said John Wargo, professor of Forestry & Environmental Studies and Political Science at Yale University in New Haven, Conn.
“The corporate community really holds the key to turning this problem around and there’s much more enthusiasm from the private sector.” Yale is seeing the environment become a focal point of a variety programs at the university including in engineering and public health, said Wargo.
While professors aren’t willing to compare the green push to the early days of the dot-com bubble (after all there was a subsequent bust), they do say alternative energy and other green initiatives are at the cusp of becoming a money-making engine, which bodes well for students pursuing degrees in that area. At the onset many higher-education institutions are taking a broad approach, offering liberal-arts-type degrees in many cases.
“We want to train a person to go out and be a well-rounded individual" when it comes to the environment, said Michael Newton, Alternative and Renewable Energy Applications program director at SUNY Canton in Canton, N.Y., which just last year started a degree program focused on the environment.
Canton is focusing its green studies on preparing students to do everything from sell solar panels to act as consultants for corporations and architects looking to build more energy-efficient buildings. With the degree from Canton, students will also be able to work at a biofuel manufacturers. This past summer, one student took cooking oil from the cafeteria and converted it into biofuel to power all of the schools lawnmowers. While great for the environment and the degree program, the grounds people did get chased by seagulls that were drawn to the smell of the cooking grease, which smelt like french fries.
“It’s all fairly new,” said Newton. “There’s a lot of work within the industry to establish how we are going to define the workforce and what kind of labor force we need.”
In the first semester that Canton offered the degree program, administrators expected five students to enroll, yet they had 20. This fall, 20 more signed up, making it the second-largest four-year degree program on campus. The professors had targeted enrollment of 50 students in the next five years and is already close to exceeding that.
Canton isn’t alone in offering alternative energy and green degrees. Wayne State University and University of Wisconsin-Madison are just two other examples of higher education institutions offering degrees in this field.
At Wayne State University, which claims to be one of the first universities to offer a Master's degree in alternative energy, the Detroit-based school is going after alternative-energy sources, given the big presence of automobile makers in its backyard. Meanwhile, University of Wisconsin-Madison is offering graduate students a certificate program called Certificate on Humans and the Global Environment or CHANGE. The certificate program is designed to prepare students to address environmental problems.
While high oil prices and abnormal weather patterns are
driving intense interest in green right now, it was also an issue in the 1980’s. But it then disappeared from the minds of
many once oil prices dropped. This time around, professors say the green push should have staying power. That means students
aren’t likely to come out of school with useless degrees.
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