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Why the Fed Keeps Cutting Rates

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On October 29th, the Fed "slashed rates" again, reducing the key interest rate to a low 1%. Here's some information about what it all means.

What is the Fed?

The Fed is the Federal Reserve System, the central banking system in the US. Currently Ben Bernanke is the Chairman of the Board of Governors of the Fed. The Fed has a dual mandate: to promote stable inflation and maximum employment.

To do so, it controls the Federal Fund Rate. This is the interest rate at which banks lend money that they hold at the Federal Reserve to each other overnight. The Fed actually only sets a target rate, which is where they think the interest rate should be. They don't set the actual interest rate, because that is determined in the open market. The Fed just tries to lead everyone in the right direction.

Why do banks hold money at the Federal Reserve?

The Fed requires that each bank must have a minimum amount of reserves (money) deposited in the Fed. This minimum amount is a percent of the bank's total receipts from customers.

Why do banks lend to each other?

Some banks have excess reserve requirements and can help out those that have insufficient funds by loaning them money. At a price, of course. These loans are typically made for one day.

Why does the target rate matter?

It basically controls the supply of money. When the interest rates are low, banks have more access to credit (because they can now borrow from other banks at a lower interest rate) and are able to loan that money out to businesses and consumers. Businesses and consumers are more likely to borrow that money, because the interest they will have to pay on the loan will also be lower. As a result, people have more money on hand and, therefore, are likely to increase spending.

Since we may be in a recession and consumer spending has plummeted (the fastest decline in 28 years), the Fed wants to stimulate consumers to spend. Consumer spending represents about 70% of our GDP, or gross domestic product, which is the most widely used indicator of the health of the economy. Basically, the economy relies on consumer spending. So it is necessary to help consumers spend in order to keep the economy going. That means cutting interest rates.

The Federal Open Market Committee meets every month and announces the target rate. They started cutting rates last September—in August 2007, the target rate was 5.25%. Their announcement from the October meeting indicates more cuts may be necessary since "downside risks to growth remain." The last time the rate was lower, Eisenhower was in office (1958).

Read more of what Diana learned today here.

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iStock // Ekaterina Minaeva
Man Buys Two Metric Tons of LEGO Bricks; Sorts Them Via Machine Learning
May 21, 2017
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iStock // Ekaterina Minaeva

Jacques Mattheij made a small, but awesome, mistake. He went on eBay one evening and bid on a bunch of bulk LEGO brick auctions, then went to sleep. Upon waking, he discovered that he was the high bidder on many, and was now the proud owner of two tons of LEGO bricks. (This is about 4400 pounds.) He wrote, "[L]esson 1: if you win almost all bids you are bidding too high."

Mattheij had noticed that bulk, unsorted bricks sell for something like €10/kilogram, whereas sets are roughly €40/kg and rare parts go for up to €100/kg. Much of the value of the bricks is in their sorting. If he could reduce the entropy of these bins of unsorted bricks, he could make a tidy profit. While many people do this work by hand, the problem is enormous—just the kind of challenge for a computer. Mattheij writes:

There are 38000+ shapes and there are 100+ possible shades of color (you can roughly tell how old someone is by asking them what lego colors they remember from their youth).

In the following months, Mattheij built a proof-of-concept sorting system using, of course, LEGO. He broke the problem down into a series of sub-problems (including "feeding LEGO reliably from a hopper is surprisingly hard," one of those facts of nature that will stymie even the best system design). After tinkering with the prototype at length, he expanded the system to a surprisingly complex system of conveyer belts (powered by a home treadmill), various pieces of cabinetry, and "copious quantities of crazy glue."

Here's a video showing the current system running at low speed:

The key part of the system was running the bricks past a camera paired with a computer running a neural net-based image classifier. That allows the computer (when sufficiently trained on brick images) to recognize bricks and thus categorize them by color, shape, or other parameters. Remember that as bricks pass by, they can be in any orientation, can be dirty, can even be stuck to other pieces. So having a flexible software system is key to recognizing—in a fraction of a second—what a given brick is, in order to sort it out. When a match is found, a jet of compressed air pops the piece off the conveyer belt and into a waiting bin.

After much experimentation, Mattheij rewrote the software (several times in fact) to accomplish a variety of basic tasks. At its core, the system takes images from a webcam and feeds them to a neural network to do the classification. Of course, the neural net needs to be "trained" by showing it lots of images, and telling it what those images represent. Mattheij's breakthrough was allowing the machine to effectively train itself, with guidance: Running pieces through allows the system to take its own photos, make a guess, and build on that guess. As long as Mattheij corrects the incorrect guesses, he ends up with a decent (and self-reinforcing) corpus of training data. As the machine continues running, it can rack up more training, allowing it to recognize a broad variety of pieces on the fly.

Here's another video, focusing on how the pieces move on conveyer belts (running at slow speed so puny humans can follow). You can also see the air jets in action:

In an email interview, Mattheij told Mental Floss that the system currently sorts LEGO bricks into more than 50 categories. It can also be run in a color-sorting mode to bin the parts across 12 color groups. (Thus at present you'd likely do a two-pass sort on the bricks: once for shape, then a separate pass for color.) He continues to refine the system, with a focus on making its recognition abilities faster. At some point down the line, he plans to make the software portion open source. You're on your own as far as building conveyer belts, bins, and so forth.

Check out Mattheij's writeup in two parts for more information. It starts with an overview of the story, followed up with a deep dive on the software. He's also tweeting about the project (among other things). And if you look around a bit, you'll find bulk LEGO brick auctions online—it's definitely a thing!

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Nick Briggs/Comic Relief
What Happened to Jamie and Aurelia From Love Actually?
May 26, 2017
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Nick Briggs/Comic Relief

Fans of the romantic-comedy Love Actually recently got a bonus reunion in the form of Red Nose Day Actually, a short charity special that gave audiences a peek at where their favorite characters ended up almost 15 years later.

One of the most improbable pairings from the original film was between Jamie (Colin Firth) and Aurelia (Lúcia Moniz), who fell in love despite almost no shared vocabulary. Jamie is English, and Aurelia is Portuguese, and they know just enough of each other’s native tongues for Jamie to propose and Aurelia to accept.

A decade and a half on, they have both improved their knowledge of each other’s languages—if not perfectly, in Jamie’s case. But apparently, their love is much stronger than his grasp on Portuguese grammar, because they’ve got three bilingual kids and another on the way. (And still enjoy having important romantic moments in the car.)

In 2015, Love Actually script editor Emma Freud revealed via Twitter what happened between Karen and Harry (Emma Thompson and Alan Rickman, who passed away last year). Most of the other couples get happy endings in the short—even if Hugh Grant's character hasn't gotten any better at dancing.

[h/t TV Guide]