/biz/ - Business & Finance

Explain to a brainlet

>>12413359
Your father will lose his job and your mother will suck dicks for 20$ to pay for your cereal

>>12413359
>Explain to a brainlet
When they sell those assets, they sell them for USD, and that means they take that USD out of the economy, which reduces USD deposited in banks, which reduces how much banks can lend out by several times the amount of that USD. Banks can lend out much more money than is in the bank. You've probably heard of fractional reserve banking.

So lets say an investor takes 60 million out of his accounts to buy the assets the FED is selling, and that bank operates with a 10% reserve ratio. That means the bank has 600 million USD less it can lend out.

When there is less access to loans, there is less access to money, and that means business and investors have a harder time, or have to pay more (interest) to get that money, which can cripple businesses and also crash the price of assets like stocks or houses. This because it's harder/impossible to get a housing loan and buying based partially loans in order to buy a multiple dries up, so people selling assets need to underbid each other to get them sold, leading to a price crash. Banks also refuse to lend to each other when there is a shortage of money, which can lead to banks going under.

It's called a liquidity crisis because assets and debt/investment can't be exchanged effectively, so they don't flow anymore and the economy gets "stuck" to some extent. Businesses especially not getting loans and investment can lead to a downwards spiral of less employment and purchasing power. A recession.

>>12413493
A surprisingly good post. Well done anon.