"Usually an interest rate, such as the 12% you have here. It includes three parts: risk-free interest rate, risk premium and profit. The risk-free interest rate is relatively fixed, which is the basis for ensuring that your funds will not be lost."

"If you only look at the risk-free interest rate, assuming that everyone can afford to pay back the money 100%, so there is no risk, the risk premium is classified as 0, and the profit is also classified as 0. If you only use the risk-free interest rate to lend loans, it is equivalent to what you are doing now

If you lend a loan of US$100,000, ten years later, the principal and interest you receive together will have the same purchasing power as the current US$100,000.”

Jim drew a cylinder in his notebook. The largest part below is the risk-free interest rate. Then he continued:

"Have you seen this ratio? The risk-free interest rate is the basic core of money circulation. Because the risk premium will increase or decrease based on the qualifications and past records of the loan applicants; the profit interest rate will also vary depending on the bank's

The goals are different and subject to change. For example, the profit attributes of commercial banks are much higher than those of savings banks, so their interest rates will increase more in terms of profits."

"So what really affects the market, everyone, all banks, all credit institutions, including industries related to the loan market, is this risk-free interest rate."

"Then the risk-free interest rate is..."

Carter looked thoughtfully at the chart Jim drew.

"You can refer to treasury bonds. In fact, there is no real risk-free interest rate in reality, but treasury bonds issued by the governments of large economies can basically be regarded as risk-free. Because the pledge behind the treasury bonds is national tax revenue, for big countries

, the tax revenue is stable and large, and there is almost no inability to repay.”

"Combining this, do you find a problem?"

At this point in the introduction, Jim stopped writing and started to guide Carter to think...

"You just said that the interest rate on the ten-year Treasury bond is rising! Do you mean to say that this interest rate is not controlled by the Federal Reserve?!"

"Yes, but it is not absolute. Interest rate is a cyclical indicator, overnight interest rate, weekly interest rate, January interest rate, even one year, ten years, twenty years..."

Jim nodded approvingly, fully confirming Carter's statement.

"Everyone of us is making predictions about the future. How can we give a standard to the things we predict? Even if we give it, we won't recognize it, right?"

"The federal funds rate, all the Federal Reserve can control is the interest rate that day. This is the current day, the money is with me, and if you want to borrow it, you have to follow my rules! This is an interest rate that is completely controlled by the Federal Reserve, but in the long term,

That’s impossible!”

"For example, the Federal Reserve now says that I want to set the interest rate on ten-year loans at 8%. What's the use? Inflation is now above 10% every year. In other words, the purchasing power of my money depreciates by about 9.1% every year.

, the value-added your interest rate gives me is only 8%, then I’m not a fool, why should I buy this product that I originally wanted to use to maintain or even increase value?”

"These medium and long-term loan interest rates, that is, the interest rates that the central bank cannot directly control, are LPR, which is the loan market quotation rate. This interest rate is determined by the market and cannot be directly controlled by the central bank, but they can indirectly affect it. This is what I just said to you

Yes, quantitative control!”

Quantitative control?

Before Carter could finish digesting the previous content, Jim’s words came again:

"On the eighth floor of the New York Fed headquarters building, there is an office called the Federal Reserve Trading Room. The job of this office is to regulate the open market. They keep an eye on the government bond market, buying bonds with high interest rates and selling them

Issuing bonds with low interest rates is used to control the monetary aggregate. It makes people unwilling to continue to spend money on illusory investments and focus on the present. Use the money to live or do anything else."

"In short, it is to reduce the circulation of money in bonds and the securities market. This is quantitative shrinkage, artificially affecting the economy. Following this idea, think about what you are doing?"

"Loan interest rates are the lowest in the state! Even the lowest in the country. You are encouraging local people to come in for loans and increase the currency circulation in the market like crazy."

"I know you made a lot of money speculating in gold, but we never thought that you actually spent all your money here! A large amount of money that does not belong to Douglas entered, and the currency stock in the market increased greatly.

, not to mention the people you have attracted now..."

When Jim said this, his whole head was buzzing.

"3,000 families, more than 10,000 people. The real estate market alone will bring you more than 100 million in total currency. All of this money is super-issued currency! For Douglas or Pearson.

If you use the analogy of a central bank, the money you get that does not belong to Douglas is that you are issuing more money and using quantitative easing to control the market and make it more active!"

"But you have to know that these means and methods can only stimulate or have a limited impact on the economic development trend, rather than fundamentally solving the problems in the economic system! Let me walk you through the joints here. First of all

, the money they spent to buy the house came from loans in the original city, right?"

"That's right..."

Carter nodded and was about to say something when Jim asked again:

"What's the interest rate? 16? 17? Or 18?"

"The average is about 17.1%..."

"Okay, let's calculate it based on 17%. It's a loan of 40,000 yuan. In the first year, they need to pay back interest of 6,800 yuan. Then if they buy your house, they should need a loan of 10,000 yuan, right? If you calculate it based on 12%, the interest rate is 1,200 yuan.

Yuan..."

"Damn it, I don't have enough money to pay back! My current monthly salary is 500, but all year round, even if I don't eat or drink, it's only 6,000..."

Carter exclaimed and immediately realized the problem.

"Do you understand? I talked to them this morning. To be honest, you are lucky. This group of people who are coming now still have some savings in their hands. They can still hold on for the time being. If they add some money themselves, they can

Let’s put this capital turnover in one piece. But what about consumption?”

"For a family of four, the minimum monthly living expenses are 400 US dollars. At the end of the year, the money they can use to repay the loan is only 1,200 US dollars. It is not even enough to pay off the interest. They only repay the interest rate, and they still make up nearly 5,000 US dollars every year. They make up for it by themselves.

How much spending power is left?”

"So, should I get a raise? Or continue to add jobs?"

Carter, who had never calculated the accounts carefully before and only thought about how he could make money, was shocked. Then...

"That's wrong! If the pressure is so great, why would they choose a loan to relocate..."

"Why, didn't I just say it? They are actually living quite well there. The real poor people have never come here because they can't afford it! They can't afford to move this house!"

Jim sighed, and unconsciously thought of those old friends from Alabama and those childhood playmates...

"It is necessary to raise wages or create more jobs, but it is not urgent right now. If you want to raise wages or create more jobs, you have to find more demand!"

"Indeed, you have stimulated a lot of market demand now, but there is no end to this matter!"

"As soon as they finish their current work, they will often face a situation where they have no work. Let alone salary increases and layoffs, it will be great. Where will you find the demand then? Or continue to launch some projects and continue the cycle.

What? And most importantly, where does the money come from?”
Chapter completed!