Fed Encourages Big Banks Not to Lend!

Filed in Gather Business News Channel by on August 25, 2011 0 Comments

Not to lend? But isn’t that chiefly how banks generate their income. Too bad the consumer market, stock market, bond market, underwater mortgage market and, above all, the job market, are all still in the toilet.

Citing Henry Blodget, from an editorial for Business Insider, “The Fed is paying banks 0.25% interest on this money. 0.25% interest may not sound like much, but it’s more than the banks are paying you to keep money in your savings or money-market account. It’s also more than you’ll earn if you lend the Federal government money for 2 years.”

It was refreshing to hear some clarity on just what banks are doing with all those funds the Fed has pumped into them over the last few years: Those “excess reserves” are held by the Fed, not to lend! Talk about poseurs!

The attitude of former IMF staff economist, Mark Dow, is what the Fed is doing is not so egregious as all that. The International Monetary Fund was created by the United Nations; as such, was never under any compunction to stabilize capitalism … just international exchange rates while “facilitating development”, by its economic policies, to all members … including the Islamic Republic of Iran. Even China knew not to lend to that crowd.

Life isn’t fair, and neither is capitalism

“These banks would love to be lending; 25 basis points is nothing to them,” Dow says. The problem continues to be a lack of loan demand, since consumer demand, mortgage defaults, and any number of other U.S. economic ills hinge upon a single point: No jobs mean no spending. It’s that simple.

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