Welfare for Banks

Economy
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When we pay farmers not to farm that’s referred to as a subsidy.

What should we call it when we pay lenders not to lend?

The Fed pays

  • interest on required reserves
  • interest on excess reserves
  • interest on an excess reserve program known as “reverse repo.”

Per Fed data, that last one alone, the Fed’s reverse repo facility, has paid-out out over $1 trillion since 2021.

If this is unecessary, why are we doing it?
If this is necessary, why aren’t we declaring that we are in a very rare state of emergency requiring super-huge bank bailouts?

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You earn interest on your savings account held at a commercial bank.

A farmer earns interest on their savings held at a credit union.

A bank earns interest on its savings held at __________

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Love your posts but they make me head hurt :grinning:. I also find myself going down rabbit holes on the internet. Not that thats a bad thing.

Just wish I could engage more intellectually with your economic posts.

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Reverse Repo is just the way to make a loan look like a stock transaction. The lender provides funds (buys), for a security, that the borrower agrees to buy back (repay the loan that wasn’t called a loan) at a specific point in the future, for a specific premium (the interest on the “non-loan”). On paper it looks like the debt level of the borrower is lower than it actually is, because the Reverse Repo is not listed as outstanding debt.

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If this is such a good thing, or even a “not bad thing” or a “normal” thing,
—tra la la nothing to see here, move along folks—
why want it done before?

We didn’t do it during the financial crisis.
We didn’t do it post 9-11, during the stagflation 70s
We didn’t do it in WW2 nor in the great depression

On or about Aug 21, 2022 (red line) below
something happened that had never happened before
either

  • the Fed realized “Being below the zero line is a great thing. All Feds prior to this were should have been doing this. We are finally smart enough to do the right thing.”

OR

  • the Fed realized “These are very extraordinary times and we had better do this extraordinary thing.”

The first option is not likely.
We are in extraordinary times and the Fed is taking extraordinary measures.
I suggest we should not be going about “business as usual.”

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So even though this has never happened before,
we should act as though this is perfectly normal?

I a NOT trying to put words in your mouth.
It truly appears that is what you are saying.
I am just fact-checking my understanding.

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Yes, we should act like paying firms to hold their money is perfectly normal. It’s been this way since the earliest days of banks.

Was it a sign of extraordinary times when the Fed first started explicitly targeting the Fed Funds rate?

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Looks like central banks use this method to attempt to manage interest rates in the open market.

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We (the Fed)
have never ever ever before paid si much that we consistently run a deficit in that area.

Picture 2 economies identical in every way except for 1:

  • In one of them everything is the same as it always has been.
  • In the other, at the same time it bailed out SVB depositors, and depositors elsewhere, and took extraordinary measures to shore up irher banks, it began running defict, after deficit after defict.

Are those economies equally healthy?

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That’s the Feds expenses increasing as they pay higher reserve balances. The Fed’s expenses increasing doesn’t cost you money.

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Okay, but don’t change the subjects.
I don’t care if the Treasury ever gets the $350b it normally would have gotten.

Let’s set that aside.

Why did the Fed never ever ever do this before, but is doing this now?

A.) A nothing has changed. There is no reason. The Fed just felt like it.

B.) Something has changed Something is different. That’s why the Fed is doing this rare, extraordinary, in fact … unprecedented thing.

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What is the “this” you are talking about? Paying interest on reserves held at the Fed?

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No,
Running deep deep into the red year after.

Making this blue line go below zero.

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See they made that blue line go down.

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That’s how they fight inflation. It’s more expensive to pay 4% on reserves than to pay .05% on reserves.

They’ve “never done it before” because this is the first inflationary period under IORB.

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Just keep taking notes. We’ll decipher this ■■■■ eventually. :rofl:

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