Federal Reserve has us Paying Banks!

The Federal Reserve published the basic plan that it follow to reduce the massive liquidity that it has injected into the system to help stave off economic collapse.

The plan was basically what could be expected from the Fed since it has basically run out of tools to combat the problem.

It can raise the Federal Funds rate, which is the rate the Federal Reserve charges member institutions to borrow overnight to balance their books. It can also raise the "discount rate" which is a discounted funds rate that member institutions pay when they borrow money for emergency reasons or for more than one day. Normally the payback period is 28 days but the Fed has increased it to 90 days for this crisis and it currently stands at .25%

A new approach that was broached by the Federal Reserve was for it to pay an "Excessive Reserves Rate" to banks that leave some of their funds in the Federal Reserve which would reduce the available money supply.

That's right, you got it, the Fed now wants us to pay banks for the money they have of ours. You see, now that Americans are saving at a much larger pace than normal, the banks believe they will have excessive cash sitting in their vaults. So based upon the Federal Reserve Rate, we will get some lower yield, banks will loan it at higher yields. But the beauty of this new policy is that the money that they cannot loan will be earning interest if they give it to the Fed instead of keeping it in the bank. Since the Federal Reserve is private and made up of banks, not us, it would seem logical that it would continue it's policy of providing capital to banks in the least expensive way.

The spreads on all the rates can be adjusted to make it look like the banks are complying with the "intent" of being for the public good, but in reality, they will be running the Federal Reserve to enrich their own accounts.

Talk about stealing from the blind.