Interest rates might seem like a complex concept to grasp. But anyone who buys anything needs to understand.

Here’s a transcript of our conversation:

Emma: Hi, Brittany.

Brittany: Hi, Emma.

Emma: Today I wanna talk about something that affects all of us in many, many ways, but few people can actually explain. And that is interest rates. And this might kind of sound like a boring topic at first, but stick with us. We’re gonna get into how these affect us and how the government controls them because I promise that they affect every single one of us listening at one point or another. They also have a super sketchy past, and it’s, something that everyone deals with at one point or another in their life. So, to start off, I’ll just give a sort of a quick explanation of what an interest rate is, and then we can kind of get into who controls them and how they affect our lives. So basically an interest rate is when you borrow money, it is the amount of extra money that you pay for the ability to borrow the money. So let’s say that you wanted to buy a car for a thousand dollars and you don’t have a thousand dollars. So you go to the bank and you say, Hey, I want to get a loan for this car. And you know, you sign up for the loan they check into your credit history, which we’ve talked about before, to make sure that you will be a good borrower. And then they say, okay, here’s the money and this is the interest rate. And basically, the way it breaks down is every month when you make a payment on that loan, there’s a little extra payment that you have to make. And it’s basically what pays the bank for letting them borrow or for letting you rather borrow money from them. So there are interest rates on pretty much any sort of loan, any sort of money that you’re borrowing. And the main one that people talk about is interest rates with buying houses. And it’s a complicated thing to try to wrap your mind around, student loans. If you know anyone with student loans, they’ll always talk about the interest rates and how hard it is to actually make progress with how crazy the interest rates are on those. And there are a couple of different kinds of interest. So compounding interest is the one that you really have to look out for because basically every month the interest rate is it basically takes the whole pile of money that you owe and then adds the rate to that. So it multiplies it by whatever the amount of money you owe in that pile is. So if it’s simple interest, it’s just a set rate no matter what. And it’s basically just like a straightforward, all right, here you go. And on most loans, interest is compound because that’s how banks can make the most money, so.

Brittany: What does that mean Compound?

Emma: Compound basically means, gosh, what’s the easiest way to explain this? It basically means.

Brittany: Sorry, caught you off guard I like to slow down and unpack some things.

Emma: Yeah, absolutely. So compound basically means it’s looking at all of the money at once and it’s basically like each month if you add more and more debt to the pile, the interest, the interest that you pay on it is gonna get bigger and bigger and simple interest is when you basically pay the same each time. So that’s, does that kind of answer your question? Yeah.

Brittany: So, simple would be like every time you make a payment, that’s how much compound would be like if you take like the big picture if you looked at all of it. Yep.

Emma: Okay. Perfect. Exactly, yes. Good clarification. And there’s different sorts of ways that interest can affect us. If you have money in a savings account, sometimes the banks will actually pay you interest and they’ll say like, Hey.

Brittany: I don’t mind, I get like a cent every couple of months.

Emma: Yep. Same. I get these little like 1-cent payments. Yeah. But if you have a lot of money that’s sitting in the bank, that does add up a little bit. You know, it’s not a really good way to make money, but there are ways that you can earn interest or you can pay interest. And there’s a famous quote out there somewhere, I, gosh, I can’t even remember who it’s from. Someone very famous and they were like the wise man, you know, master’s compound interest. And the fool is a slave to compound interest his whole life. It was something, something like that. But at the end of the day, whether we realize it or not, we’re all being affected by these interest rates. And what do you know they are being controlled by the government. Shocker. So Brittany, can you sort of break down how the government has that control?

Brittany: Yes. And I think if, you know, for just a Tuttle Twins book tie-in, we, if you wanna read Creature From from Jekyll Island, I think it does a little bit of a good job of a little bit, yeah. Does a great job of explaining this is what I meant to say. So, and if you’ve read that book, you know that we have a central banking model here in the US and you know, it’s the Federal Reserve is our central bank. And our interest rates are determined by what’s called a federal open market committee. So what does that even mean? Right? So this committee consists of seven, what they call governors, not governors from like the States, but they’re governors of the Federal Reserve Board. And whenever I think of this, I think of like, oh, Mal Hoy’s dad was a governor of Hogwarts in Harry Potter, because everything I do goes back to Harry Potter. So it’s a governor’s just kind of another word for like a leader, right? They’re on like this board. So, the governors, these seven governors, they’re on the Federal Reserve Board and there are five Federal Reserve Bank presidents. So basically interest rates are controlled by a bunch of these tentacles. So yeah, think about the creature from Jekyll Island, right? There’s all these people who remember, are not elected by us because one thing people forget is the Federal Reserve is a private bank. It’s technically not. Now, if you look at all its ties, it is government, right? But it’s a private bank with all these people we didn’t elect to represent us who are, you know, reaching with our tentacles. It’s really good, it gives you a really good vision in your head when you think of how evil it is. Yeah. So these monetary policymakers, monetary meaning money, think like money Mon like same root word they want to, or sorry, if they want to decrease the money supply, which we know they’re doing, or the amount of money being spent at one time, they’re gonna raise the interest rate, right? So this will make it more attractive to keep money saved in a bank account. So like, you don’t wanna spend your money cuz you’re gonna, you’re gonna pay more in interest rates or if you keep it in the bank, you’re gonna get higher interest rates, right? So, it’s kind of like a little like creepy incentive. Creepy meaning like, it’s not a good incentive. Like we talk about. So this keeps too many people from borrowing, the banks with the banks like mortgages and loans like at one time, which we will talk about, you know, we’ve never actually talked about what led up to the crash of the Great Depression. So we might have to do that one.

Emma: Yeah, definitely.

Brittany: It’s an example. But on the other hand, so if the central banks want to increase the money supply, they will decrease the interest rate, which makes it a lot more attractive to, you know, borrow and spend. And we’ve seen that a lot, like in the housing crisis before most of our listeners were born interest rates to buy a house were so low that people who didn’t even have a steady income, they didn’t have like jobs Yeah. They were buying these super expensive houses because it looked like a great deal, right? Everyone was like, oh my goodness. Yeah, look at how low these interest rates are. So they were getting people to spend more money and the crazy thing, it’s what they call like a bait and switches, those low-interest rates didn’t last forever. Oh yeah. So then they shot up and then people what happened, but they couldn’t pay it, right? Yeah. And so then you had people being homeless. It was terrible.

Emma: Yeah. That was one of the best examples of how crooked and corrupt this banking sort of half-government, half-private system is because so many people were told by their banks, oh perfect, here’s this house you can afford. And people would buy these crazy nice houses that normally they wouldn’t be able to afford. And like, you said, Brittany, it was all of a sudden things changed and it got a lot harder to pay for those houses and it caused all sorts of problems. So when you ever hear people talking about the great recession, that’s what they’re talking about. And it’s, you know, it’s pretty crazy thinking through even just the last couple of years if any of your families are looking to buy a house, it’s really, really hard to buy a house right now because the Fed basically lowered these interest rates to be super, super low. So right now it’s very affordable to, you know, compared to, you know, the rest of history, it’s very, very affordable to buy a house because these interest rates are extremely low. So what does that do? I believe that they actually lowered them at the beginning of the pandemic to try to get more people spending money buying houses.

Brittany: That’s what, cause I remember a lot of people were Yeah. We’re able to do it and then now it’s changing.

Emma: Yeah. So, they lowered the interest rates trying to get more people to buy houses and they created this crazy housing boom to where now they’re, it’s really, really difficult to actually find a place to live. And all of these houses are getting so expensive because like I said, the government is manipulating that rate, making it really to borrow and spend money because they want people spending their income to, you know, quote, help the economy. In reality, they’re just kind of engineering things and there’s always consequences for doing that. But the interest rate percentage that is given by the Fed, by that Board of Governors affects the prime rate, which that basically means it’s the rate that the banks charge their best customers with the highest credit rating with the most money. And it’s also the rate that banks charge each other for overnight loans, which sounds crazy, but banks don’t actually keep a big pile of money to back up the amount in everyone’s saving and checking accounts. So when you read about, you know, the Great Depression and sort of what happened leading up to that, one of the big things that first tipped people off was when the inflation was getting so crazy, people were going to the banks to pull their money out and the banks didn’t have enough money to give people what was in their savings accounts. So it’s pretty crazy that banks do that. A lot of people don’t realize you can’t just go to the bank and say, Hey, I have a hundred thousand dollars sitting in here, I want it now. It’s actually a lot more complicated than that and the banks have to borrow from each other. It’s just a really, really crazy system. We could do five episodes just about all of the weird things that we don’t even realize that the banks do with our money. But all of this control and manipulation in the hands of crony government leaders can cause bad inflation, which we’re experiencing right now. We have the worst inflation in over 30 years. And it makes perfect sense because while interest rates are the lowest that they’ve been in almost, well actually yeah, in a decade. I guess 2012 was a decade ago.

Brittany: Oh my goodness. It was a decade ago.

Emma: That is crazy. I don’t like that at all. But inflation is super high while interest rates are super low, and that’s not necessarily to say that the interest rates have caused the inflation. We’ve talked about how complicated inflation is and how many things affect it. And you, you basically have to be like a professional economist to fully explain it. So I won’t even try or you have to be Connor Boyak, he’s pretty good at it. But it’s really messed up how the government manipulates us through manipulating our money. And it might be cheaper to borrow money right now, but this isn’t always a good thing because it’s another way that the creature controls us because they print fake money that waters down our savings. And the housing market, like I said is a good example of this. It’s so hard to buy a house because the Federal Reserve has kept these low interest rates, meaning people pay a smaller borrowing fee to the banks doing their mortgage. And this affects all sorts of things. Not just housing or buying a car, but all sorts of things in our life. So Brittany, can you think of a couple of other things that might be affected by, you know, the way the government controls these interest rates?

Brittany: I think a better question would be what isn’t effective, right? Because I don’t think you could find anything. Yeah. One thing I love, there’s a really good book by a guy named Richard Mayberry and I talk about him a lot, on here cuz he writes books called the Uncle Eric series, where it’s an uncle writing to a nephew and it’s as if the nephew’s asking really complicated questions. So it’s for a little bit older kids, like junior high school. But I read them, I think it’s a great way to get history. Yeah. But he has one called whatever happened to Penny Candy and he talks about how back in his day, not to sound like a grandpa back in my day, candy costs a penny. You get a piece of candy for a penny and then he talks about how that hasn’t happened anymore and because of this. So I think that’s a good way. So something as simple as candy, right? You go to the store or something like that that’s affected Yeah. By interest rates, college tuition. Absolutely. And that’s also, that’s a little bit trickier though because it’s also impacted by, student loans. Cause the more the government gives, the more colleges have to raise their money. Cars, houses, I mean pretty much Emma, anything you can think of, clothing. I went on a rant to this the other day on an episode with Connor where I drink a lot of heavy cream like in my coffee and tea because I Keto. And the cream I usually get at Whole Foods went from $6 to $10. Cause they get like a big jug. And I’m just thinking like, oh my goodness. So food right now, especially, I mean, go to the store with your parents and your parents are probably sick of seeing the Costco up. So everything, it’s everything.

Emma: It is everything. If you’re paying money for it, it’s being controlled by the government. I hate to tell you guys, but that is the truth. That is why we’re so passionate about the creature from Jekyll Island book. It’s one of our best sellers for a reason. I am gonna put a link to that Richard Mayberry book too in the show notes because I think that would be an awesome resource for adults, for kids. Maybe you read it with your family and kind of talk through the questions. but we are gonna wrap it up here today. Guys, main takeaway, like I said, if it has to do with money, the government is manipulating it and trying to control you through it. So there you go. Thank you guys for listening and we will talk to you all again soon.

Brittany: Talk to you soon.