Free Money Calculation: Fed Will Give $36.93 Billion of Taxpayer Money to Banks

The Fed upped the interest it pays on excess reserves to 1.95% today. This is free money (taxpayer funded) to banks.

The Fed bumped up the interest it pays on excess reserves today to 1.95%. Currently, excess reserves sit at $1.894 trillion.

The math is simple enough. At the current rate, the Fed will hand over approximately $36.93 billion of taxpayer money to banks. That assumes the status quo, but things will change.

Factors

  1. The Fed is shrinking its balance sheet slowly. That reduces excess reserves the Fed pays interest rates on.
  2. When the Fed hikes interest rates, it also increases the interest it pays on excess reserves.

The first point acts to reduce free money, the second acts to increase free money.

Note to ECB

If you want to recapitalize Italian banks, just give them free money instead of your profit-reducing policy of holding rates negative.

Taxpayer money?

Yes! Otherwise the Fed would return this money to the US Treasury.

Some claim free money is paying banks to not lend. The claim is fallacious. Banks do not lend from excess reserves.

For discussion, please see Free Money! Banks Paid $22 Billion to Not Lend?

That was the amount I calculated on April 17, 2017. Interest then was 1.0%.

Even though the Fed's balance sheet is lower, the increased rate bumped up the free money calculation to $36.93 billion.

No Outrage!

Why isn't $36.93 billion in free money to banks an outrage?

Mike "Mish" Shedlock

Comments
No. 1-7
Stuki
Stuki

And, furthermore, this is ( possibly minus 1 to 5%) all that any of the “financial” “Industry” is: A slight obfuscation for crass theft by the Fed and regulators. From competent, productive people; to an army of dumb idiots sitting around living large on unearned funds. Stolen from others by what in Progressivestan passes for government.

This is the sole and only reason New York, as currently constituted, is wealthier than a West Virginian former coal town, abandoned by all but a few opoid junkies trading regime supporting votes for dope. And why Sand Hill Road is packed with overpaid leeches, while productive (at least potentially) companies are struggling to afford close-by office space. It’s why competent people who do productive work are having a hard time making ends meet, while abject nothings in the FIRE sector are producing nothing, yet can somehow still afford to consume a lot of what the former produces. Etc. etc.

That entire “industry” (talk about newspeakian misnomer for what is nothing but a taxpayer funded welfare racket for idle-or-worse connected mediocrities), which has of course grown like the tumor it is, in the years since Nixon went full retard, is simply not, in any way, compatible with a healthy economy. You can’t have a “system” where a government steals ever more of productive people’s wealth and earnings, for the benefit of a bunch of complete nothings, without running into a collapse.

And furthermore, the sooner the “collapse” comes, and the more all-encompassing it is, the better. Which is why there is not a reason in the world to not simply aim for sanity in one fell swoop. Sanity being $22/oz gold and let the chips fall where they may. Factories won’t suddenly fall down, roads won’t disappear, oil will still be in the ground, houses will still stand, workers tools and skillsets will carry over unscathed. IOW, there will be no loss of “wealth” at all. Just a loss of the levers of bondage that the Fed has bequeathed to the leeching classes, which currently allow them to treat their productive countrymen as chattel labor. In the process gumming up and slowing down anything that may even resemble genuine economic growth.

And given that things, absent collapse, is obviously going nowhere but the wrong way; it either has, or inevitably soon will, reached the point where even the most destructive means of bringing about such a “collapse” will be a net benefit. Think Mogadishu in the 90s, a bit rough for some years but ultimately for the better. The West “may” still (if barely) contain enough trappings of its former civilized self to contraindicate shaking things up to quite that extent, but the way things are going unless they drastically change, it won’t for long. Living in peace is generally nicer than living through a war and all, but living as nothing hut a slave is still worse than either.

Tengen
Tengen

Until the central banks stop being kingmakers and actively widening wealth inequality, nothing else matters. Our politicians/people could constantly strive to be the best versions of themselves and it wouldn't be enough to overcome all this incentivized fraud. It's human nature to play a rigged game to one's advantage.

The playing field needs to be releveled somehow, and if that requires something like collapse, so be it. At least something better could possibly be built on the other side.

stillCJ
stillCJ

Editor

Somehow I seem to have missed the "More Free Taxpayer's Money to Banks" in the Fed's announcement today.

FloydVanPeter
FloydVanPeter

Give free money to city of Seattle. I bet they will find a good use for it.

compsult
compsult

it's news like this, coupled with news of increasing homelessness, that makes me want to projectile vomit

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