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?
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.
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.”
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.
For now on . . . when we give welfare to banks . . .
Let’s make sure they’re American banks, okay?
If the economy is in such big trouble that banks need a bailout, that should be disclosed so that people don’t squander their money on risky schemes nor on consumer items they would not buy if they knew the truth.
Backdoor bailouts for banks should be limited to US banks.
(Preferably ended altogether, but hey, let’s start where we can.)
A lot of the financial community, Wall St. Financial media, economists etc. are silent when they should be speaking out.
If a farmer plants his fiedl, he in inielgible for the tradtonal subisidy.
If a worker returns to work his welfare is cut-off.
Likewise and in exactly the same manner, any time a banker chooses to lend money the payments he receives from the Fed for taht portion are cut-off.
They are exactly the same.
The only cagne we have made is that there are now a variety of farm subsidies.
. I also find myself going down rabbit holes on the internet. Not that thats a bad thing.
