Relocation

If you intend to borrow money for a car, use a credit card, or obviously buy a home you are directly affected by the Federal Reserve System. Even if you just cashed or deposited a check. That includes just about all of us.

Here’s How it Works

The Federal Reserve System is the Central Bank of the United States. It lends money from the Federal Government to banks and savings and loans around the United States at its “discount rate”, the base interest rate the government sets to govern interest rates in the economy. The banks add 3% to set their “prime rate”, the best rate the banks charge their best customers.

As the “Feds” raise the discount rate, the banks instantly raise their prime rate which affects:

• Equity lines of credit
• Car loans
• Credit card rates
• Personal loans
• Mortgage loans

The purpose of this decision is to slow down the spending of Americans. As this happens the economy slows and takes pressure off those factors influencing inflation.

Federal Reserve Interest Rate Decisions
Approximately every 45 days the presidents of the twelve Fed districts gather with the Fed Chairman Ben Bernanke (the recent replacement for Alan Greenspan) to review the economic data and decide whether a discount rate change up or down is warranted. This decision is closely watched by the stock market and the bond market, as well as the wording of their announcement. The wording can give significant clues to their true thinking and will affect the market as much as the rate change itself.

What Happened to my Check?
The Federal System is also the check clearing agency for the United States. There exist 12 Fed Districts throughout the U.S. We are in the 11th District, head quartered in San Francisco. When you write a check it is first sent to the bank of your recipient and then to the Federal Reserve Bank in the district your check was received. It then physically is transferred back to San Francisco if your home bank is in the 11th District and then back to your bank for “clearing”. This process is why banks will require five to 10 days to clear your check or to clear a deposit.

Peter M. Galde is the founder and principal at Cornerstone Capital Funding, 14500 Mono Way, Suite 110, Sonora Ca. 95370. Peter has 28 years experience in the finance industry. E mail Peter or call him on 209 532 7711 for further information.