Fiscal vs Monetary Policy | SURE Sales Group Ep. 46

Fiscal vs Monetary Policy | SURE Sales Group Ep. 46

October 9, 2019 1 By Luis Garrison


Welcome back to the SURE Sales Group
Show episode 46 and today I want to tackle the difference between fiscal
policy and monetary policy here on the show we talk about real estate sales
negotiation marketing entrepreneurship buying selling renting investing and
what it’s taken us to grow from two employees to 20 from 30 million in sales
to a hundred thirty million in sales in the last few years thanks for watching
there is a whole bunch of conversations going around right now with buyers
sellers Realtors mortgage lenders around interest rates on last week’s show you
know Todd Mummerts been stopping by talking about interest rates Mark Peay
was here talking about interest rates and it’s a very important topic and
conversation because it directly impacts buyers and their ability to qualify for
specific monthly payments so I wanted to take it kind of one step deeper and go
over you know why these interest rates are what they are who controls them and
what kind of controls some of the dynamics and it all starts with the
difference between fiscal and monetary policy it’s my opinion if you’re in
business you should know the difference between the two and I think a lot of
people get them confused and I’ve heard people talk about them in a fashion that
was kind of confusing and it didn’t make a lot of sense so I just want to break
that down real quick here and then we’ll get to the interest rates so fiscal
policy is policy set by the national government that’s you know the Congress
gets together and they pass bills and legislation typically around taxes and
spending hey how are we gonna collect money and how are we gonna spend it and
everyone’s got an opinion on it people don’t like taxes we spend too much we
taxed too much we don’t do enough etc etc that’s what the government does
that’s fiscal policy set by our national government fiscal policy what’s totally
separate and totally independent of that is monetary policy and monetary policy
is set by the Fed if you’ve heard say hey the feds doing this the feds doing
that the Fed is the Federal Reserve our central bank
completely independent from anything our government’s doing is this central bank
the Fed which controls monetary policy and what monetary policy is is it’s
designed to promote a healthy economy and control inflation and how they
control inflation is with interest rates so let me take a step back because I skipped a
point another reason this is relevant is we have a new Fed Chairman it was Janet
Yellen now it’s Jerome Powell his friends
probably call him Jerry Jerome Powell is the new Fed Chairman and he’s been
making the news quite a bit as these interest rates go up because as the Fed
Chairman who you know is the kind of the head of the monetary policy he’s
controlling the interest rates in an effort to promote a healthy economy and
control inflation so quick thing on inflation because that’s kind of a
mystery to a lot of people what is this phenomenon known as inflation inflation
is essentially you want to control the fact that prices for goods go up in the
purchasing power of our currency goes down we need to control that we don’t
want the McDonald’s hamburger to cost 97 US dollars the price would be going up
and then how much is a dollar worth if ninety seven of them gets me a
cheeseburger so that’s inflation we want to control
that and how we do control it in this country with the central bank the Fed is
through interest rates this is very low level stuff now I’m not an economist and
I’m not trying to be one on the internet so there’s people who know a lot more
about this than me this is just the basic stuff and I do think it’s
important to know the difference between fiscal policy and monetary policy but to
go a little bit deeper the reason these interest rates are
going up is Jerome Powell is saying job growth has been robust it’s been good
jobs are growing economy strong consumer spending also very good people are
spending more money and that just helps the economy and then people are getting
paid more too so the corporate tax restructuring probably helped with that
so all these things are good and now interest rates are going up in an effort
to control inflation so what’s really important about this is
they said Jerome Powell and the feds said there will be three interest rate
hikes in 2018 scheduled and two more in 2019 interest rates are going up we’ve
been talking about this in the industry for like the last five years because
they’ve been so low but now – the economy is doing really good job growth
wage growth consumer spending interest rates are going up they’re already out
for your highs and why is that important if you’ve had thoughts of buying a home
and you know the interest rates are going up the rate at which you can
borrow money time is not your friend in that instance you probably want to buy
sooner you know apples to apples if you bought this month versus you buy at the
end of the year this month you’re going to be able to borrow money a little
cheaper if you’re thinking about selling a home or making a move hey when
interest rates go up your house becomes a little less affordable
someone who could qualify to buy your home when their interest rate is
four-and-a-half percent might not be able to qualify to buy your home if the
interest rates are at five percent and they are going up so this kind of big
you know economic conversation around fiscal policy and monetary policy is
important because it directly impacts pricing inventory the velocity of the
market buyers buying power it’s a very complex issue I highly encourage anyone
interested in economics in general to watch Ray Dalio’s YouTube video just
Google Ray Dalio how the economic machine works twenty minutes he explains
it beautifully and I’ve always been appreciative of someone who can take a
complex topic and break it down into something a little bit more simple so I
can wrap my head around it that’s all I have for today
fiscal policy totally separate from monetary policy they have to work
together to promote a healthy economy but they’re totally separate entities
totally different I hope you learned something until next time
oh by the way the Fed the central bank that’s not actually who like your
borrowing your money from like their interest rates aren’t what your loan
rates going to be kind of how it works says their monetary policy sets up the
bond markets which then sets up the consumers lending rates so the monetary
policy changes they’re going to raise rates that affects the bond markets that
affects the rates at which banks and investors are willing to lend people
money to buy houses so there is a little bit of a go-between there and if you
have any questions on it I would be happy to refer you to some of our
mortgage people who probably could explain it much better than me and
thanks again for watching