Boom Crunch Crash

The classical Marxist blog about the crisis

Posts Tagged ‘Fed’

Fed encouraging banks not to lend

Posted by Steve Palmer on December 6, 2008

There is no shortage of money to keep business going.

There is, right now, $1,171bn of idle funds just sitting in the banking system which could be loaned out – OVER ONE TRILLION DOLLARS.

This is enough to bail out the auto industry 34 times over.

This is enough to pay for a whole month’s production from the entire US economy or a year’s output from the Canadian economy, or the Brazilian, or the Spanish, or the WHOLE of South Asia or the WHOLE of Africa and the non-oil middle eastern economies (World Development Report, 2008).

Last night’s statistics from the Fed show that yesterday Commercial Banks had $843.7bn in cash and $633.8bn in reserves on deposit at the Fed. In August the respective figures were $297.8bn and $8.7bn. So this is far more cash than is needed for daily operations and these are excess reserves above the statutory requirements. (Releases H.8 and H.4.1)

Hundreds of millions of these dollars are from the handout program. They’ve been sitting there for weeks. Why? Because the monetarist morons who control this have decided to pay interest on those reserves. That rate is currently 1%. But the effective Fed Funds rate – that’s the rate at which banks lend to each other – was 0.2% last night. So, by taking handout money and stashing it at the Fed, banks are making money risk free with a 0.8% interest rate.

And people are wondering why the banks aren’t lending!!! The banks don’t want to lend to each other, because they’re dubious about each other’s creditworthiness. And Bernanke and company are making the problem worse by paying the banks not to lend!!!

This is why so many people lost jobs in the last month. Finance Capital is just sitting on the money. THIS is ‘systemic risk’: risk to the livelihood of tens of millions of working people and their families, who are losing their homes and jobs and who see prices for food and basics rising month after month.


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