Fed to pay interest on reserves

[phirang]

Re: Fed to pay interest on reserves

from marginal revolution:

Why is the Fed Paying Interest on Excess Reserves?

Alex Tabarrok
Today the Fed starts to pay interest on reserves. The zero interest on required reserves was an opportunity cost to banks, a tax if you like, so paying interest lifts the tax. Reducing taxes on banks at the present time makes sense and in the long run there are some efficiency gains from paying interest on required reserves, especially to the extent that the previous system could be gamed. Overall, however, this is small potatoes.
More interesting is why the Fed. will pay interest on excess reserves. In the long run, there are again efficiency gains but why would the Fed. want to make it more profitable for banks to hold excess reserves now when we want every dollar in the credit markets? My best guess is that the Fed. wants to play more Operation Twist and in Brad DeLong's terms this gives them an additional tool to do it on the Pan-Galactic scale. In short, they will buy long bonds and commercial paper or other such asset and use the interest payments on excess reserves to sterilize. Although paying interest on excess reserves brings this whole operation under the Fed house it's unclear to me, however, how the situation is markedly different than with Fed/Treasury cooperation.


me: This makes total sense. The fed will try to inveert the yield curve to reflate asset prices?

[Supercilious]

Re: Fed to pay interest on reserves

me: This makes total sense. The fed will try to inveert the yield curve to reflate asset prices?

That makes a lot of sense, plus it gives them the opportunity to push more treasuries in the global financial system, which was their main goal in the first place.

All that toxic paper the Fed gobbled may prove soon very profitable, and an excellent inflation hedge.

[grapejelly]

Re: Fed to pay interest on reserves

and it also hides the fact that banks aren't comfy lending to each other. Now they don't have to lend to each other (overnight Fed funds lending).

[phirang]

Re: Fed to pay interest on reserves

That makes a lot of sense, plus it gives them the opportunity to push more treasuries in the global financial system, which was their main goal in the first place.

All that toxic paper the Fed gobbled may prove soon very profitable, and an excellent inflation hedge.

So remind me why part of me insists on panicking? :eek:

I am tempted to buy a nice imported-car worth of notes now...

finally: I think it is very, very dangerous to underestimate the Fed. Learn to respect and FEAR the Fed.

[jk]

Re: Fed to pay interest on reserves

since interbank lending is frozen, doesn't the availability of interest on excess reserves allow the fed to play counterparty to interbank liquidity? i.e. the fed acts as the intermediary in all transactions. banks lend excess reserves to the fed. banks in need of reserves borrow from the fed. no bank has to trust another bank.

[Supercilious]

Re: Fed to pay interest on reserves

Others point to the 0% reserves, and I wonder why it was for 2011

I see what you're driving at now - very tough call on why 2011 was the year chosen. I have little clue but since the original bill came out in 2006, some hints are probably available when looking at what was going on then.

Probably 2011 was the target date set for total global financial control and complete de facto dollarization of the global economy.

If fiat money controlled by the Fed (treasuries) becomes the only source of power money for the world banking system ... well it's obvious.;)

IMHO what we are witnessing now is an artificial crisis created with the only scope of worming in treasuries and create a standard by displacement and dilution of other classes of power money (such as indigenous treasuries and gold). They want to finish the job in a few years.

So remind me why part of me insists on panicking? :eek:

Because the show they put is very credible, if you don't pay attention to details and begin immediately to smell a rat.

finally: I think it is very, very dangerous to underestimate the Fed. Learn to respect and FEAR the Fed.

Yup. The most common mistake is to consider them a bunch of idiots who lost any control on the economic development. They love when people fall for that, because they don't have to answer some very simple and embarrassing questions.

[phirang]

Re: Fed to pay interest on reserves

Probably 2011 was the target date set for total global financial control and complete de facto dollarization of the global economy.

If fiat money controlled by the Fed (treasuries) becomes the only source of power money for the world banking system ... well it's obvious.;)

IMHO what we are witnessing now is an artificial crisis created with the only scope of worming in treasuries and create a standard by displacement and dilution of other classes of power money (such as indigenous treasuries and gold). They want to finish the job in a few years.





Because the show they put is very credible, if you don't pay attention to details and begin immediately to smell a rat.


Yup. The most common mistake is to consider them a bunch of idiots who lost any control on the economic development. They love when people fall for that, because they don't have to answer some very simple and embarrassing questions.

This is why I find Jim Rogers so incredible: he totally dismisses the Fed, when the Fed has literally unlimited resources in both information and power.

What I don't understand is why are rich Euros buying gold and not USD? Are they stupid?

[Supercilious]

Re: Fed to pay interest on reserves

What I don't understand is why are rich Euros buying gold and not USD? Are they stupid?

I don't know if all rich Euros are buying gold. I don't have any information that any rich top tier rich Euro on a majority line is buying physical gold other than to sell it at the proper moment for a good premium. I doubt that you can find this kind of information publicly available.

[xela]

Re: Fed to pay interest on reserves

"What I don't understand is why are rich Euros buying gold and not USD? Are they stupid?"
Am not rich, but tell: Is this a sarcastic question.. since gold is about to make a new height in € ?

[*T*]

Re: Fed to pay interest on reserves

What I don't understand is why are rich Euros buying gold and not USD? Are they stupid?

Because, on average, Europeans have good taste ;)

[phirang]

Re: Fed to pay interest on reserves

Because, on average, Europeans have good taste ;)

Yes, they look so macho in their speedos at the beach...:rolleyes: