Name: Something is deeply wrong Inside the Federal Reserve
Uploaded: 2025-08-10T18:12:49.000Z
Duration: 11 min 39 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

There is something deeply wrong inside the federal reserve.

Present continuous

The federal reserve is facing a challenge that it doesn't know how to solve.

Modal verbs - A2

In fact, this problem can break the federal reserve.

This problem is so big that the fed wasn't created to solve it in the first place.

If you think that I am exaggerating, just watch the video till the end and you will get it.

When we talked about the national debt of the United States, it seems like it has always been a problem.

Yes, the US government has always had some debts, but it wasn't so big that it was a  In fact, if you look at it, you will find out that in 2008, the national debt was about 9.4 trillion dollars.

However, if you compare that to previous years, you will find out that that debt was accumulated throughout the entire history of the United States.

And then in the next 11 years, the US government accumulates 14 trillion dollars.

So since the inception of the United States till 2008, it was 9.4 trillion dollars.

And then in the next 11 years, it adds up another 14 trillion dollars.

Do you see where the problem with the national debt came from?

Because in the following years, it gets a lot worse.

Then in the next 5 years, the government accumulates an extra 14 trillion dollars in national debt.

So since 2008, the US government accumulates 28 trillion dollars of debt.

That is a lot more than the 9 trillion dollars that it accumulated in its almost 250 years.

So the real question is that, what exactly happened after 2008 that the US government got so addicted to debt?

Well, because the Fed has lowered down interest rates to almost 0%.

This is when the 14 trillion dollars was accumulated.

Then the next phase was between 2020 and 2022 when an extra 14 trillion dollars was accumulated.

From now onwards, even though the interest rates are extremely high, the government continues to accumulate a lot of debts because it has no other option but to borrow a lot of money since it's running a huge deficit.

On one side, should it save the government of the United States or it should care about the creditors?

We have 37 trillion dollars of debt, and the government is in trouble.

It's spending over a trillion dollars in interest payments, and it's probably the biggest problem that the government is facing right now.

And lowering interest rates is going to ease up that pressure on the government.

On the other side, there are people who loan that money to the government of the United States, and if you lower down interest rates, you are going to hurt them because inflation is going to rise and they are not going to make any kind of real money on their investments.

Especially if you look at the inflation data, it's about 2.7 to 2.9 percent, it depends how you count it, but the trend is very clear that inflation is rising.

So if you lower down, for example, hypothetically interest rates to about 3 percent, and then inflation rises by about 0.5 percent, and then we have 3.5 percent inflation rate but interest rates are 3 percent, then the real question is to these creditors, does that make sense for them to keep investing in the US debt when their real return is negative 0.5 percent?

They would be much better selling those investments and investing in elsewhere.

Because not only that they are not making any kind of profits on their investments, but rather, they are consistently losing money on their investments.

And by looking at the budget of the US government, you can see that this problem is not a one-day problem or a one-year problem, this problem most likely is not going to be solved any time soon.

So who exactly should the federal reserve save in this case?

If you look at the nature of the US debt, you see that it has been changing over the last 20 years.

Back in 2006 and 2007, or even up to 2008, almost half of the debt was held by intra-governmental agencies.

While debt was 9 trillion dollars, it wasn't actually a huge problem because half of it was owned by different kind of government agencies.

It's still considered as a real debt, but it's not a big deal because when one government agency owes to another government agency and there is a trouble, you can actually solve that problem.

But, when the debt is being held by the public, a public means banks, financial institutions, foreign governments, you name it, you can actually fool them.

They have invested in the treasurer bills not because the government asked them so.

If you, for example, take social security funds, they are required by law to invest in the US treasurer bills, but those public investors, outside investors are not required to do so.

They have only invested in the US debt because they trust the US government, they trust the federal reserve, and they want to make a profit on their money.

And that's why you have to care about their interests if you want them to continue investing in the US debt.

However, the nature of the debt has changed over time.

Today, 80% of the US national debt is held by the public and just 20% of it is being held by intra-governmental agencies.

The government today must be much more responsible with its debt because most of the debt is being held by the government, or by the public, I would say.

And 9 trillion dollars of that is being held by foreign governments.

Foreign governments are not investing in the US because they want to help the United States.

It's because the US government provided them with good terms in the beginning and they trust the government of the United States.

But if they are going to make negative 0.5% on their investments in the US treasurer bills, what's the point of their investments?

They would rather dump all of their treasurer bills and invest in their own countries, or invest in different assets, or even invest in the United States but in the US stock market where they could actually make real returns instead of losing their money to inflation because of the US government or because the federal reserve has lowered down interest rates.

So that puts a lot more pressure on the federal reserve before they can lower down interest rates.

They have to think about this, they have to think about the reputation of the dollar.

Even though the Fed is kind of part of the government, but at the same time, it's a private institution, so they have to care about the interests of the government, especially about the reputation of the dollar in this case.

But that even creates a very strange problem.

Because we just recently had a disastrous jobs report.

We have actually overestimated the number of jobs that are being added, which means that the economy is slowing down, which means that the economy can get into a recession.

Now, when unemployment starts rising, the government is in trouble because government revenues are going to dry up, since less people are working, less people are paying income tax, less people are paying payroll tax, and less people have money to spend.

And when people don't spend money, then the economy starts growing much slower, which is going to dry up again the government's revenue sources.

And that is why the federal reserve has to lower down interest rates to prevent that from happening.

And that's why the Fed has this dual mandate, that you are not only going to care about inflation, but at the same time, you have to care about the maximum employment, because maximum employment ensures that the government can still have their sources of revenue.

But the government is already running a 2 trillion dollar deficit, so it cannot possibly afford at this situation any kind of recession unless it fixes that problem.

But on the other side, the creditors cannot possibly simply accept losing money on their investments just because the government of the United States has accumulated so much debt.

It's not their problem, it is the problem of the US government, which puts extra pressure on the federal reserve.

And that's why you see this war between the white house on one side and the chairman of the fed, because they have entirely different priorities, who exactly should the federal reserve save in this case.

But that gets a lot worse, because this decision has the potential to bankrupt social security.

Social security payments make up the largest portion of the US government's spending.

And by law, the US government is obligated to make these payments since people are paying income tax, people are paying payroll tax, and now they want to see the benefits of their payments.

So you cannot possibly stop paying the social security payments.

But another thing that is required by law is that the social security payments must be indexed based on the inflation data.

Well, it isn't exactly the inflation data, but rather it is the COLA, what we call the cost of living adjustment, but it's pretty much very close to inflation.

So if the cost of living is rising, you have to adjust the social security payments by law to adjust the cost of living, which means that if you lower down interest rates, then the cost of living is going to rise, because if inflation is rising, then the cost of living is rising.

And that means that more payments should go towards social security payments, which is going to take a bigger portion of the government's spending.

On one side, you are lowering down interest rates in order to make it easier for the government to pay off its debts.

On the other side, the government has to borrow more money because now it has to spend more money on social security payments.

Now currently, social security funds have around 3 trillion dollars in treasury bills.

It's important for them to have these investments since they are making a return on those investments and they can use those investments to pay off the social security payments.

But now, because they have to increase their payments and at the same time, they are not getting enough payments, they might need to start selling their treasury bills in the open market to raise enough money to make their social security payments.

But when you are lowering down interest rates on one side, the demand for the treasury bills is going to go down, which means that social security funds will find it much more difficult to sell their treasury bills in the open market since creditors no longer have an interest rate to buy US treasury bills.

But you can still sell them if you lower down your prices.

So social security trust funds might need to lower down their prices to be able to sell their treasury bills to still continue making their payments on social security benefits, which could speed up the bankruptcy of social security funds.

There has already been reports that by 2034, social security could run out of money.

But with these changes, that could happen as soon as 2030.

That's why it puts the federal reserve in a very strange situation.

In a situation that no matter what it does, it is going to hurt somebody.

Either it's going to hurt the creditors or it's going to hurt the social security trust funds or it's going to hurt the government of the United States.

Now, most likely, the Fed is going to lower interest rates to a certain extent in September of this year because of the disastrous jobs report.

We have overestimated the number of jobs, and it means that, most likely, the US government is going to enter into a recession.

The government is not ready, it cannot possibly afford a recession right now.

So it remains to be seen how the Fed will solve this crisis.

Don't forget to check the links in the description of this video.

Thanks for watching and I will see you in the next one.

Subtitles ListPlay Video

Something is deeply wrong Inside the Federal Reserve

situation

exaggerate

negative

revenue