Quote:
Originally Posted by Calgaryborn
That is something that makes little sense to me. The federal reserve is the one who sets interest rates and they are also the ones lending America money: Why do they have to raise interest rates if some secular agency lowers America's rating?
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Because the cost of money goes up to the whole country, if the goverment has to pay more to borrow money and they are the safest bet then everyone else less safe that wants money goes up in lock step, its a market that has goverment bonds at its base, everything else is priced based on that.
In effect we all compete with the goverment to borrow money for our own needs, as we are a less safe bet to repay than them we have to pay more than them.
Money is just as much a commodity as oil or steel or pork bellies, it is just priced (bought and sold) with interest rates.