Comments on: The Fed’s Balance Sheet and Excess Bank Reserves http://taxesandbudget-blog.ncpa.org/the-feds-balance-sheet-and-excess-bank-reserves/ Insights on Taxes, Economic Policy, Federal Budget | NCPA Tue, 16 Mar 2010 17:24:04 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Systemic Risk and the Federal Reserve | Economic Policy | Bob McTeer | NCPA http://taxesandbudget-blog.ncpa.org/the-feds-balance-sheet-and-excess-bank-reserves/comment-page-1/#comment-10513 Systemic Risk and the Federal Reserve | Economic Policy | Bob McTeer | NCPA Thu, 30 Jul 2009 16:16:04 +0000 http://taxesandbudget-blog.ncpa.org/?p=979#comment-10513 [...] to "mop up" excess reserves in the banking system. As I've written here recently, the reserves were only "excess" in a legal or regulatory sense. Under the circumstances of the mid-1930s, the bankers didn't regard them as excess and [...] [...] to "mop up" excess reserves in the banking system. As I've written here recently, the reserves were only "excess" in a legal or regulatory sense. Under the circumstances of the mid-1930s, the bankers didn't regard them as excess and [...]

]]> By: John G http://taxesandbudget-blog.ncpa.org/the-feds-balance-sheet-and-excess-bank-reserves/comment-page-1/#comment-10320 John G Thu, 25 Jun 2009 18:00:18 +0000 http://taxesandbudget-blog.ncpa.org/?p=979#comment-10320 The following graph explains it all. There is a complete mirror of our current currency in circulation sitting in the coffers of the Fed as a by-product of all the money it created by buying up securities and given bailouts. The only thing holding back this tidal wave of high-powered money and preventing hyperinflation is your tax dollars in the form of interest payments to private banks. http://research.stlouisfed.org/fred2/graph/?chart_type=line&width=1000&height=600&preserve_ratio=true&s[1][id]=EXCRESNS The following graph explains it all. There is a complete mirror of our current currency in circulation sitting in the coffers of the Fed as a by-product of all the money it created by buying up securities and given bailouts. The only thing holding back this tidal wave of high-powered money and preventing hyperinflation is your tax dollars in the form of interest payments to private banks.

http://research.stlouisfed.org/fred2/graph/?chart_type=line&width=1000&height=600&preserve_ratio=true&s1id=EXCRESNS

]]> By: John G http://taxesandbudget-blog.ncpa.org/the-feds-balance-sheet-and-excess-bank-reserves/comment-page-1/#comment-10319 John G Thu, 25 Jun 2009 13:44:37 +0000 http://taxesandbudget-blog.ncpa.org/?p=979#comment-10319 Ok, let's stop being so naive to what is really going on here. Where do you think the Fed earns profits to pay this interest on reserves?! ...mostly from interest on treasuries which is paid by our government, and the government gets the money from YOU through taxing. The Fed has to return all profits after paying operating expenses and dividends to member banks back to the Treasury. Now less of this profit will go back to the Treasury and instead go directly into private banks. Only an idiot would believe the press release from the Fed that this is being done to help set a lower bound on the Fed Funds Rate. In a matter of weeks the spread was quickly increased from 10/75 basis points below the Fed Funds Rate for required and excess reserves respectively to being directly set by the Fed to the same as the Fed Funds Rate of 25 basis points even though the official target is 0-25 basis points. If the current target is 0-25 basis points why would you be worried about a floor!!!! Why would you set it at the upper bound of your target range!!!! HELLO ANYBODY HOME?? HE IS PAYING THIS INTEREST AS RANSOM FOR THE BANKS TO HOLD THE 800 BILLION IN NEW MONEY THE FED CREATED WHEN IT BOUGHT ALL THE TREASURIES AND MORTGAGE SECURITIES AND IS USING YOUR MONEY TO DO IT. This is only going to get more expensive from the over 2 billion a year currently being paid, as interest rates on reserves will only go up with the Fed funds rate to persuade banks not to loan out money and dump it into the market. It's so obvious Bernanke is a liar. The Fed said they need this new program right now and not in 2011 and the original wording of the bill never intended for interest to be paid on excess reserves, only required reserves, which is why the original estimated cost was only a fraction of what we are paying now. Within days of the Oct. 3 2008 passage of the act allowing interest payments on all reserves the Fed began the massive increase in the money supply to double it to over 1.6 trillion in a few months. This coordinated perfectly with a massive rise in excess reserves to the tune of exactly the 800 billion of newly created money during the same time period. Excess reserves have historically been virtually 0. Now all of a sudden they are 800 BILLION and this is just a cute anomaly!!! The only other time in modern history there has been a notable rise was after 9-11 and this was only about 20 billion, which subsided the next month. Americans now officially pay a banker tax to private banks, and if they don't they will get hyperinflation. If you have seen all this obvious information and still hold on to dollars you are a moron. This system is coming to an end and this is just a cheap circus trick by the Fed to keep it going a little longer. The spending of government is only increasing to record levels and nobody wants our treasuries anymore. We are about 1 or 2 moves from checkmate. The only way to sop up this money is for the Fed to sell treasuries and securities, I think we all know that ship has sailed. Good luck selling treasuries when the government is conducting record deficit spending, pumping out new treasuries like no tomorrow and China has had enough. Good luck selling junk toxic mortgages. In the meantime make sure you pay your banker tax which will quickly swell to tens of billions of dollars of your taxpayer dollars being funneled directly into private banks as pure profit. Bernanke is a agent of private banking with the private Federal Reserve being the biggest private bank of them all. The private banks and their king, Bernanke, are merely looking out for themselves at your expense. And now Bernanke has set up a situation in which you have no choice but to pay or suffer a hyperinflation holocaust. One man, one private banker, now has a red button to implode our economy any time he wishes, and the only way to keep him from pushing the button is paying the ransom. Ok, let’s stop being so naive to what is really going on here. Where do you think the Fed earns profits to pay this interest on reserves?! …mostly from interest on treasuries which is paid by our government, and the government gets the money from YOU through taxing. The Fed has to return all profits after paying operating expenses and dividends to member banks back to the Treasury. Now less of this profit will go back to the Treasury and instead go directly into private banks. Only an idiot would believe the press release from the Fed that this is being done to help set a lower bound on the Fed Funds Rate. In a matter of weeks the spread was quickly increased from 10/75 basis points below the Fed Funds Rate for required and excess reserves respectively to being directly set by the Fed to the same as the Fed Funds Rate of 25 basis points even though the official target is 0-25 basis points. If the current target is 0-25 basis points why would you be worried about a floor!!!! Why would you set it at the upper bound of your target range!!!! HELLO ANYBODY HOME?? HE IS PAYING THIS INTEREST AS RANSOM FOR THE BANKS TO HOLD THE 800 BILLION IN NEW MONEY THE FED CREATED WHEN IT BOUGHT ALL THE TREASURIES AND MORTGAGE SECURITIES AND IS USING YOUR MONEY TO DO IT. This is only going to get more expensive from the over 2 billion a year currently being paid, as interest rates on reserves will only go up with the Fed funds rate to persuade banks not to loan out money and dump it into the market. It’s so obvious Bernanke is a liar. The Fed said they need this new program right now and not in 2011 and the original wording of the bill never intended for interest to be paid on excess reserves, only required reserves, which is why the original estimated cost was only a fraction of what we are paying now. Within days of the Oct. 3 2008 passage of the act allowing interest payments on all reserves the Fed began the massive increase in the money supply to double it to over 1.6 trillion in a few months. This coordinated perfectly with a massive rise in excess reserves to the tune of exactly the 800 billion of newly created money during the same time period. Excess reserves have historically been virtually 0. Now all of a sudden they are 800 BILLION and this is just a cute anomaly!!! The only other time in modern history there has been a notable rise was after 9-11 and this was only about 20 billion, which subsided the next month. Americans now officially pay a banker tax to private banks, and if they don’t they will get hyperinflation. If you have seen all this obvious information and still hold on to dollars you are a moron. This system is coming to an end and this is just a cheap circus trick by the Fed to keep it going a little longer. The spending of government is only increasing to record levels and nobody wants our treasuries anymore. We are about 1 or 2 moves from checkmate. The only way to sop up this money is for the Fed to sell treasuries and securities, I think we all know that ship has sailed. Good luck selling treasuries when the government is conducting record deficit spending, pumping out new treasuries like no tomorrow and China has had enough. Good luck selling junk toxic mortgages. In the meantime make sure you pay your banker tax which will quickly swell to tens of billions of dollars of your taxpayer dollars being funneled directly into private banks as pure profit. Bernanke is a agent of private banking with the private Federal Reserve being the biggest private bank of them all. The private banks and their king, Bernanke, are merely looking out for themselves at your expense. And now Bernanke has set up a situation in which you have no choice but to pay or suffer a hyperinflation holocaust. One man, one private banker, now has a red button to implode our economy any time he wishes, and the only way to keep him from pushing the button is paying the ransom.

]]> By: Scott Sumner http://taxesandbudget-blog.ncpa.org/the-feds-balance-sheet-and-excess-bank-reserves/comment-page-1/#comment-10300 Scott Sumner Sun, 21 Jun 2009 02:46:08 +0000 http://taxesandbudget-blog.ncpa.org/?p=979#comment-10300 Bob, I strongly endorse your views. You might be interested in knowing that I have been on something of a crusade against the Fed's interest on reserves policy since last October. Earlier this year I published a couple of short notes in The Economists' Voice: http://www.bepress.com/cgi/viewcontent.cgi?context=ev&article=1508&date=&mt=MTI0NTUyOTc3MA==&access_ok_form=Continue http://www.bepress.com/cgi/viewcontent.cgi?context=ev&article=1543&date=&mt=MTI0NTUyOTM3Mw==&access_ok_form=Continue Note that I mentioned the parallel to 1936-37 in the first of these two notes. In February I set up a blog called "TheMoneyIllusion.com" which is devoted to exploring the possibilities of using unconventional monetary stimulus rather than fiscal stimulus. Since 1989, I have published a number of articles advocating a monetary policy target of 5% NGDP growth, preferably after creating a NGDP futures market. My current interest is a proposal for a small interest penalty on excess reserves, so that monetary base injections go to expand required reserves (and hence deposits), or cash in circulation. Here is a post discussing this idea from my blog: http://blogsandwikis.bentley.edu/themoneyillusion/?p=1032 It is a reply to Greg Mankiw, as we had been debating the issue of negative interest rates on money in general, which I don't think is feasible. It is the most informative of the three links I attached, if you want to just choose one. Any comments would be greatly appreciated. Scott Bob, I strongly endorse your views. You might be interested in knowing that I have been on something of a crusade against the Fed’s interest on reserves policy since last October. Earlier this year I published a couple of short notes in The Economists’ Voice:

http://www.bepress.com/cgi/viewcontent.cgi?context=ev&article=1508&date=&mt=MTI0NTUyOTc3MA==&access_ok_form=Continue

http://www.bepress.com/cgi/viewcontent.cgi?context=ev&article=1543&date=&mt=MTI0NTUyOTM3Mw==&access_ok_form=Continue

Note that I mentioned the parallel to 1936-37 in the first of these two notes. In February I set up a blog called “TheMoneyIllusion.com” which is devoted to exploring the possibilities of using unconventional monetary stimulus rather than fiscal stimulus. Since 1989, I have published a number of articles advocating a monetary policy target of 5% NGDP growth, preferably after creating a NGDP futures market. My current interest is a proposal for a small interest penalty on excess reserves, so that monetary base injections go to expand required reserves (and hence deposits), or cash in circulation. Here is a post discussing this idea from my blog:

http://blogsandwikis.bentley.edu/themoneyillusion/?p=1032

It is a reply to Greg Mankiw, as we had been debating the issue of negative interest rates on money in general, which I don’t think is feasible. It is the most informative of the three links I attached, if you want to just choose one. Any comments would be greatly appreciated.

Scott

]]> By: U.S. Monetary Policy & Economic Recovery | Economic Policy | Bob McTeer | NCPA http://taxesandbudget-blog.ncpa.org/the-feds-balance-sheet-and-excess-bank-reserves/comment-page-1/#comment-10265 U.S. Monetary Policy & Economic Recovery | Economic Policy | Bob McTeer | NCPA Tue, 16 Jun 2009 18:56:55 +0000 http://taxesandbudget-blog.ncpa.org/?p=979#comment-10265 [...] The Fed’s Balance Sheet and Excess Bank Reserves [...] [...] The Fed’s Balance Sheet and Excess Bank Reserves [...]

]]> By: Federal Reserve Purchases of Treasuries, the Yield Curve, and Operation Twist | Economic Policy | Bob McTeer | NCPA http://taxesandbudget-blog.ncpa.org/the-feds-balance-sheet-and-excess-bank-reserves/comment-page-1/#comment-10242 Federal Reserve Purchases of Treasuries, the Yield Curve, and Operation Twist | Economic Policy | Bob McTeer | NCPA Fri, 12 Jun 2009 13:35:50 +0000 http://taxesandbudget-blog.ncpa.org/?p=979#comment-10242 [...] The Fed’s Balance Sheet and Excess Bank Reserves [...] [...] The Fed’s Balance Sheet and Excess Bank Reserves [...]

]]> By: Mark http://taxesandbudget-blog.ncpa.org/the-feds-balance-sheet-and-excess-bank-reserves/comment-page-1/#comment-10237 Mark Thu, 11 Jun 2009 00:40:51 +0000 http://taxesandbudget-blog.ncpa.org/?p=979#comment-10237 Mr Bob, I'd be interest to hear your opinion on how significant the impact of paying interest on excess reserves could have in the scenario that the Fed begins to try to tighten or constrain lending. Will paying interest on excess reserves likely be used by the Fed in this manner, and if so, will it be a powerful tool? Or is the jury still out on this? (Also...Tough to find a whole lot of work done on this, so if you have any links or suggestions for readings on the topic of paying interest on reserves, that would be great too...) Thanks. Mr Bob,

I’d be interest to hear your opinion on how significant the impact of paying interest on excess reserves could have in the scenario that the Fed begins to try to tighten or constrain lending. Will paying interest on excess reserves likely be used by the Fed in this manner, and if so, will it be a powerful tool? Or is the jury still out on this?

(Also…Tough to find a whole lot of work done on this, so if you have any links or suggestions for readings on the topic of paying interest on reserves, that would be great too…)

Thanks.

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