4 ms·

The problem lies in the fact that the fed gives essentially free money to banks in order to have them loan it out in the first place. If the government didn't s

The problem lies in the fact that the fed gives essentially free money to banks in order to have them loan it out in the first place. If the government didn't supply this money, there would be less of a moral case for them to dictate how it should be used.

bogomipz 10y ago
Outside of the 2008 the bailouts, the Fed doesn't give money to banks. That is not how the Fed works. I am not even sure what you are referring to. Fed overnight rate? The discount window? The Fed has a few tools at its disposal but none of them includes giving money to banks.
- zaroth 10y ago
  I think they're talking about Fannie Mae / Freddie Mac.
- jazzyk 10y ago
  Artificially setting the fed funds rate at 0.25- 0.50% is essentially giving money for almost free. That rate was even lower before last fall.
  - bogomipz 10y ago
    The Fed funds rates is not money from the Fed. The Fed funds rate is the amount that banks charge to borrow from each other, bank to bank. And this money banks lend each other is NOT and can NOT be used for loans, it is used to cover their Federal Reserve obligations. Also the Fed does not actually set this rate, it can only try to influence it via Open Market Operations, so no it not the same thing at all, most certainly not "essentially."
    - jazzyk 10y ago
      Whether obtained as Discount or Fed Funds, the money allows the bank to loan out more money, because it increases the bank's reserve, no?
    - dredmorbius 10y ago
      Does not the Fed effectively control banks' demand for money through reserve ratios?
jazzyk 10y ago
But then, banks would need to solicit deposits from savers (the horror!), which would cause interest rates to go up, and the whole current economy based on debt could possibly collapse...
chaostheory 10y ago
> The problem lies in the fact that the fed gives essentially free money to banks in order to have them loan it out in the first place. The Fed R3serve or the Fed Gov?

bogomipz 10y ago

Outside of the 2008 the bailouts, the Fed doesn't give money to banks. That is not how the Fed works. I am not even sure what you are referring to. Fed overnight rate? The discount window? The Fed has a few tools at its disposal but none of them includes giving money to banks.

zaroth 10y ago
I think they're talking about Fannie Mae / Freddie Mac.
jazzyk 10y ago
Artificially setting the fed funds rate at 0.25- 0.50% is essentially giving money for almost free. That rate was even lower before last fall.
- bogomipz 10y ago
  The Fed funds rates is not money from the Fed. The Fed funds rate is the amount that banks charge to borrow from each other, bank to bank. And this money banks lend each other is NOT and can NOT be used for loans, it is used to cover their Federal Reserve obligations. Also the Fed does not actually set this rate, it can only try to influence it via Open Market Operations, so no it not the same thing at all, most certainly not "essentially."
  - jazzyk 10y ago
    Whether obtained as Discount or Fed Funds, the money allows the bank to loan out more money, because it increases the bank's reserve, no?
  - dredmorbius 10y ago
    Does not the Fed effectively control banks' demand for money through reserve ratios?

jazzyk 10y ago

But then, banks would need to solicit deposits from savers (the horror!), which would cause interest rates to go up, and the whole current economy based on debt could possibly collapse...

chaostheory 10y ago

> The problem lies in the fact that the fed gives essentially free money to banks in order to have them loan it out in the first place. The Fed R3serve or the Fed Gov?