Thursday, March 7, 2013

The Fed Benefits the Banks and the Government

So says David Howden. He observes that the Fed's decision to pay interest to commercial banks on their reserves at the Fed amount to a banking system bailout and its commitment to purchases of Treasury Bonds which subsidizes the leviathan state.

Howden's analysis leads him to conclude:
[W]e see the usual outcomes. The banking sector has benefited from its operations (unusually so, thanks to the continued interest on reserve policy) and the government has received a free lunch by having a ready buyer for its ever-increasing debt, especially long-term debt, which might otherwise be susceptible to inflationary pressures increasing its interest yield. Let’s see what surprises the Fed has in store for us in 2013.

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