Instead of making loans with all of those deposits that are flooding in, your local bank can now buy Certificate of Deposits from the Federal Reserve.
“Doing so would provide banks with another incentive to park their money at the Fed, rather than having it flow back into the economy,” writes Jeannine Aversa for the AP.
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CDs? Really?
Man, they’re trying anything to sop up all the extra garbage money they pumped in.
That gives me an idea: the Fed could later default on all the CDs, and not bail itself out. That’d get rid of all the money they’ve created in the past couple of years, right?
I think this depends upon political conditions.
and really, the fed is captured by the banks, so it doesn’t make sense to not bail them out. moreover, the fed serves as regulator of the money supply – and its methods to do so keep changing. the question is whether it can keep things under control, which i don’t think is true. as the “money” “invested” with the Fed compounds and grows huge, esp as interest rates rise, the banks will find ways to turn it into real money.
the ecb is bailing out the French and German banks that stockpiled Greek bonds. the fed’s mbs purchases are the same thing. if the fed is basically guaranteeing the banks on other people’s debts, i don’t see why it wouldn’t also guarantee its own debts, especially when it can simply print it off. a default is big news and could lead to greater political control.
But that could indeed be one possible exit plan. i don’t see how they could sell the mbs’s without exposing losses or just brazenly committing fraud.
I think Hayek said it best in the Hayek vs. Keynes rap anthem:
“And that credit crunch ain’t a liquidity trap, just a broke banking system I’m done that’s a rap.”
The banks aren’t holding unprecedented excess reserves because they hate lending to small businesses. They are sitting on the money because they know they are insolvent if they are forced to recognize losses in the near future.
The title gives me a devilish idea: What if the Federal Reserve and the RIAA fused together into a horrible statist monster, and the official currency of the US was now digital copies of the latest pop mp3′s?
CDs From The Federal Reserve To Sop Up Excesses!
One of the reasons the unConstitutional coup wants to have its agents – that are masquerading as members of Congress – pass legislation giving more regulatory power to the Federal Reserve is so it can make it illegal for banks to release reserves, making it possible for the Federal Reserve to ‘mop up’ its ridiculous deluge of dollars that flooded into the economy via its bribed allies.
Put your finger in the dike, brainless and unethical Bernanke, while the flood waters rise and continually rise exerting irrepressible forces on its flimsy, ill-conceived and unethically constructed dike wall. Does New Orleans symbolically ring a bell? Incompetence is only part of the sad story of economic terrroism by the unConstitutional coup!
Next week’s big idea: tax credits for banks that set cash bonfires.
This is just corporate welfare plain and simple. Banks should be going bankrupt and the markets can then finally clear, but the Fed decided to protect itself and its members by just out-and-out subsidizing them with such schemes.
No doubt the free market will continue to be blamed for all the problems caused by over-investment in the US govt., and banks will be bashed for not lending out their money.
I think the picture is more like this:
-the Chinese and other foreign nations are beginning to balk at buying up trillions more in US debt. They won’t do it for much longer. Thus the “free ride” of debt fueled government profligacy is ending.
-tax increases are simply not going to happen. Yes, there are already numerous in the health care takeover, but the backlash is already large and building. And, any real or direct taxation will never get out of congress. There’s no chance of increasing any revenues to the government. (Although I could be wrong. I’m sure Dear Leader would simply issue an executive order levying some sort of tax, the courts would acquiesce, and the IRS’ 16,000 new recruits would be sprung into action.)
-the fed will monetarize the debt (Helicopter Ben has said as much) by buying up the US treasuries. It can now do this by using the “savings” of the public. Thus the government owes the fed but it’s an accounting trick. The money is “borrowed”, lent, spent, redeposited. Lather, rinse, repeat. I’m sure an accountant can easily show one side of the ledger is equal to the other side, and since it’s all the same government, what the left hand takes from the right…
So, this frees the gov’t to spend like a drunken Keynesian.
How does selling CDs sop up anything? After the terms are up, that money comes back out into the world, plus interest. It’s not like the Fed is about to default on them.
bingo
they intend to roll them over indefinitely. it is like a pool of phantom money that grows larger and larger, but never crosses into the real economy, effecting real prices. at least, that’s the plan.
eventually they’ll lose control, and the banks will figure out how to turn it into real money, despite any incentive or understanding by the fed that they need to stop that from happening.
bernanke doesn’t care how much debt he puts on the fed – its not his debt.
it seems to me our money and credit system is completely being turned into a regulated, fiat creature. there is no firm sense of ownership or expected value. so the fed liabilities are backed up by what? toxic MBS’s? US securities (even when almost all the interest earned is returned to the Treasury)? no. pure fiat.we should soon expect fiat prices. or at least revisions to inflation calculation.
When the crisis first hit they were screaming about the “credit crunch” and how
we needed the bailouts so that banks could loan new funny money to Mom and
Dad so they could buy Junior a car, and the doughnut shop owner so he could
keep the cops fat and happy on a sugar high, and let’s not forget the company which
needed to borrow in order to meet payroll!
Society was supposed to fall apart if lending decreased. And then suddenly, after the bailout,
the policy is to discourage the lending of the all-powerful, society-saving funny money.
Gee, perhaps our “leaders” did not understand that lending to Main Street was not the
reason the banks got trillions in loans and guarantees? Hmm, maybe it was just to save the
banks for the sake of saving the banks?
I need someone smarter than me to help me examine the effects of the Fed offering cds to banks. Please review and give me your feedback. To sop up excess money supply, the fed has traditionally sold securities. This resulted in increasing supply of securities for sale which decreased the price of those securities while driving the yield up thus increasing interest rates. This also had a discouraging effect on lending as the cost of funds started to increase. Under the new scheme of paying interest on cds, one has to consider what the fed will do with the cd money. One could guess that they will go out and purchase govt securities. This has the opposite effect. The fed purchases will drive the prices of the securities up which will result in lower interest rates. It appears that the fed can use this mechanism to soak up excess reserves and still keep interest rates artificially low. This in essence gives them a tool to finance lots of government spending without the normal increase in interest rates. Am I seeing this correctly and what is the down side?
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