So why did the Federal Reserve Bank increase their discount rate? The discount rate is what the Fed charges member banks to borrow money from them. The other rate, the fed funds rate, is what the Fed suggests member banks use to loan money to one another.
But banks aren't loaning money to one another. Why? For the same reason they're not loaning money to you and me -- fear! But is the Fed trying to alleviate that fear? Raising the rate increases the risk of inflation, and is the equivalent of throwing your kid into the deep end of the pool and expecting him to swim.
And with the economy in the shape it's in, we all feel like we're drowning. Thanks, Chairman Bernanke, for throwing us into the pool.
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