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Federal Funds Rate

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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Game Plan

Balance, Wherefore Art Thou?

 
 
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Life coaches tend to relish the idea of helping their clients reach this much coveted “place” called work-life balance. Some will even break out a pie chart to figure out what areas of a client’s life need to be trimmed and which ones should be filled out more. Too much career here. Too little spiritual there.

Until a few weeks ago, I had a pretty fixed idea of what the ideal life pie should look like. It closely resembled the (utopian?) societal norm where career, family, health, creative pursuits, social life, hobbies and spirit are nicely represented. But I just read a book called The Taboos of Leadership, The 10 Secrets No One Will Tell You About Leaders and What They Really Think by Anthony F. Smith and it made me rethink the options for divvying up that pie.

Maybe we should put down the knife and try to open our minds to alternate possibilities before we start slicing. Why are we assuming that everyone sees balance the same way? Aren’t we being short-sighted?

Smith, co-founder and managing director of the Leadership Research Institute, writes of work-life balance through the prism of a leader. His work takes a scholarly approach to leadership and his client roster over 20-plus years in coaching and consulting includes McKinsey & Company, American Express, the National Football League, General Electric and the Walt Disney Company. But his overall message on this topic applies universally – work-life balance is very personal.

“I counsel leaders not to worry about changing their work-life balance if they are essentially healthy and happy,” Smith writes. “Leaders can’t allow others to calibrate their work-life balance scale.”

Why should any of us, right? Some people are passionate about their work and want to go full tilt. They thrive on it, in fact. They know there’s a price and they’re willing to pay it. Their reward is a brand of exhilaration they rarely experience outside of work. And this often mystifies those around them.

"I am hard pressed to come up with anyone, in any field, that has achieved greatness by working 9-5," Smith said in our recent interview.

We talked about Tiger Woods, an example he uses several times in the book. Tiger, he suggests, might consider balance to be four hours a day working on his short game and four hours a day on his long game. “If someone were to say to him, “You should be out fishing, windsurfing, and learning another language,” he might say in return, “I just don’t want to,” Smith writes.

That’s illuminating. As coaches, and as self-aware people, we may need to shift the paradigm a bit on this work-life balance goal. I would certainly not discourage a client who was trying to carve out time in a hectic schedule to spend in her garden or at yoga class, but now I might be inclined to ask more questions about her expectations and goals at work if that’s the area we’re cutting into. In other words, how might one shift impact other areas and is that OK? I can think of a couple of past clients whose intent I may have misread because I hadn’t considered alternatives to the societal norm.

At one point in our discussion, Smith gave me a glimpse into the mind of the CEO – “He may be saying, ‘This is my source of power. I know I should spend time with my kids, but I made this choice to run this company. I’m doing what I really love. I’d like my kids to look at me as powerful and joyful.’”

That’s actually kind of a heady mix, isn’t it? Interestingly, Smith then made a point that I have made to many a client, only in a different context: If you love what you’re doing, you’ll be a better spouse, parent, sibling, colleague, friend. He is talking about leaders, but I more often find myself saying this to devoted mothers who feel guilty about self-care and hesitate to miss an occasional Little League game to go to a book club meeting.

Which goes to show that the distribution of the life pie really has to be left to the individual and where he or she wants to draw the line. As Smith writes, a CEO might think balance is 10 years of working 18-hour days followed by 10 years of playing golf.

“What lens do you want to use to determine balance? A year? A month? A week?” Smith asked, adding with a laugh, “You can dial it all the way around. Someone could say, ‘Nancy, you worked 58 minutes of this hour. Where’s your balance?’”

I had to laugh, too. Maybe it’s time to toss the pie out the window.

Balance, wherefore art thou?

Nancy Colasurdo is a practicing life coach and freelance writer. Her Web site is www.nancola.com. Please direct all questions/comments to FOXGamePlan@gmail.com.
 

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