Delicious free lunches for banks

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Delicious free lunches for banks

Thursday, November 19th, 2009 | Economics |

Arnold Kling - Thoughts on the Macro Paradigm:

At this point, I was cornered. I had no choice but to say what I really believe about what the Fed was doing. In spite of all the sophisticated rhetoric about “quantitative easing” and “new tools for monetary policy,” the only way that I can understand what the Fed was doing is to say that the goal was to stimulate bank profits, not the economy. If your goal were to stimulate the economy, you would inject enough reserves to do that and not pay interest on reserves. That might require buying some long-term bonds or mortgage securities, but not the hundreds of billions that the Fed actually bought.

Everything the Fed has been doing over the past fifteen months makes sense if you think of their goal as transferring wealth from taxpayers to banks. If you try to explain it as an attempt to implement an expansionary monetary policy, you won’t even get past my high school students.

Previously - Delicious free lunches for Judge Elihu Smails

Tags: free lunches, the fed