A Sign of Desperation at the Fed
by Robert Wenzel
Thanks to Ben Bernanke’s new monetary “tools”, the Federal Reserve continues to operate in panic mode. Specifically, because the Fed now pays interest on reserves held by banks at the Federal Reserve, excess reserves are piling up at the Fed at a remarkable rate.
There are now $1.5 trillion in excess reserves just sitting there that could explode and hit the economy at anytime and cause huge price inflation. There has never, ever, before Bernanke started paying interest on reserves so much of an overhang in excess reserves. In the month before the Fed started paying interest on excess reserves, September 2008, excess reserves stood at only $27 billion.
Here’s the difference between then and now:
Here’s a graph of the situation: