The Fed Gave Wall Street A Bomb, And The Taxpayers Are Paying Ransom

Thursday, August 3, 2017
By Paul Martin

by Tho Bishop via The Mises Institute,
Aug 3, 2017

When Janet Yellen testified before the House Financial Services Committee last month, she faced grilling on a topic that hasn’t received enough mainstream attention: the interest being paid on excess reserves at the Fed. While the topic has come up occasionally since the program began in 2008, it is worth noting that Yellen was pushed by both Jeb Hensarling, the committee chairman, and Andy Barr, the chairman of the Monetary Policy Subcommittee.

While ending this taxpayer subsidy to Wall Street is important, it’s also important to understand the dangers posed by allowing these excess reserves to be lent out of major financial institutions.

To understand what is at stake, recall back to 2008 when many Fed observers were concerned about the inflation dangers posed by the policies of the Bernanke Fed.

In a six year period, the base money supply increased over four-fold.

Understandably, this sparked grave fears about the devaluation of the dollar – fears that, to date, have yet to really present themselves in the CPI. While stock prices, real estate prices, and other types of asset-price inflation are likely being fueled by this monetary policy, the Fed isn’t facing political pressure from inflation concerns – but rather being grilled by misinformed legislators for not reaching their (unfortunate) 2% inflation target.

This is, in part, due to the fact that a lot of this new money has been kept sterile by being parked within the Fed itself as excess reserves.

Today, more than $2 trillion worth of these reserves are parked at the Fed, which means that only two thirds of the newly created money has actually been pumped into the “real economy.”

The Rest…HERE

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