Is the Fed's 0% interest policy a continuation of the bank bailouts?

[Karmadillo]

Sure, it makes it hard for fixed income people who rely on CDs to keep up with inflation, but if they're forced into the stock market in search of yield, it would maybe increase share prices and help us get to Dow 30,000 even sooner.

http://www.declineoftheempire.com/2011/08/two-more-years-of-backdoor-bank-bailouts.html

Two More Years Of Backdoor Bank Bailouts

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The U.S. central bank’s policy of holding interest rates near zero is a subsidy for large banks and redistributes wealth from savers to debtors, said Thomas Hoenig, president of the Federal Reserve Bank of Kansas City.

Banks can borrow at 0.25 percent and buy Treasury bonds that yield 3 percent, keeping the difference. “It provides them a means to generate earnings and restore capital, but it also reflects a subsidy to their operations,” he said to the House Subcommittee on Domestic Monetary Policy and Technology today in Washington.

<My note: Yesterday's 10-year yield on Treasuries was 2.2%. The 2-year was 0.19%.>

“It is not the Federal Reserve’s job to pave the yield curve with guaranteed returns for any sector of the economy, and we should not be guaranteeing a return for Wall Street or any special interest group,” he said.

more...

[ixion]

1. It's cheap money they resell to consumers at 12-14% or better

so yeah, it's a bailout, in my opinion.

[amborin]

3. +1

[DCKit]

7. +2

And with all the people now relying on their credit cards for necessary expenses, it's another kind of inflation.

[daa]

8. Wrong, they don't land to consumers or business they buy

treasuries and keep the difference. This is Obama's way of recapitalizing the banks. Other countries nationalized the banks, fired the bad management and put the strong banks back in business. Our banks still haven't recognized their true losses yet and that is why BOA is a walking zombie.

[ixion]

10. Yes, they are buying treasuries, but not exclusively

we agree on everything else. BoA, Chase, JP Morgan, Citi, all walking zombies...

[indepat]

17. And a near 0% savings and market rates for the smaller saver who have been royally

fucked fbo of those who created the financial meltdown. It is tantamount to an additional very high Federal tax. :patriot:

[mmonk]

2. That and part of a false economy they have to prop up due to tax cuts

and budget cuts and to keep interest rates artificially low.

[abelenkpe]

4. yes nt

[rdking647]

5. actually yesterdays fed statement was a negative for banks

what they did was crush the yield curve.. That has a direct negative impact on banks profitability

[JVS]

6. How?

[rdking647]

9. they have been making a money by borrowing at zero

and lending based on 10 year treasury rates. (or not lending and just buying shorter dated bonds.

now those rates have come down a lot so the spread the banks make money on is less.

[Karmadillo]

13. It's still free money for the banks, isn't it? I don't know enough economics to

understand why the arrangement allows the Fed to loan to the banks who loan to the government at a nice profit.

[Broderick]

11. Maybe

people are saving regardless of the effort to force non-savings with low interest. If it is to help the home ownership, that ship sailed a bit back on the massive foreclosure rates and devaluation of property nationwide. People are afraid.

[AngryAmish]

12. yes it is.

[banned from Kos]

14. No, it is not. That is ridiculous. Low interest rates spur construction

and capital equipment purchases thus stimulating the economy. It is a cost free Stimulus program.

Those who complain about low interest rates for savers don't mention that banks who pay those low rates are writing down billions in bad loans.

[Karmadillo]

16. Is that what's been happening with recent low interest rates? This chart suggests not.

This is from June 2010.

http://www.businessinsider.com/chart-of-the-day-us-government-securities-at-all-commercial-banks-2010-6

CHART OF THE DAY: Banks Are Lending Money Like Crazy To Single Borrower

That would be Uncle Sam.

The latest data, which just came out yesterday, confirms that while bank lending remains subdued, purchases of government securities continue to soar.

Why the thirst for government securities? Well, government has a big thirst for money, and in this environment, it's nice to put money with an entity that you're sure can pay you back.

Seriously, why would you bother lending to an actual job-creating small business.

[Swede]

15. If interest rates go up,more mortgages will go into default.

Credit card holders will not make payments,etc etc

[sfpcjock]

18. I think so...

The US has a policy that the Fed can't directly buy the Treasury notes that it prints (printing money). So, it sells them at a discount to Goldman Sachs et. al.. Then Goldman fences them to buyers around the world and takes a cut. That's why they have a new $2 billion headquarters building in Manhattan. Who has a $2 billion building? The 52 story BofA building in San Francisco cost $50 million. The TA Pyramid in S.F. cost $32 million.

What the banks who receive this money do is invest it in commodities because they know that the stock market is unstable, and that real estate has been ruined by the Bush Crash. They have no choice. That's why the grocery store has exploding prices and why people can't buy basic commodities they used to consume in places like Egypt and the Middle East.

[Unvanguard]

19. No. And it won't cause inflation in this economy. n/t