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Hi timber Interesting So.... the Fed is paying interest to the...

  1. 7,336 Posts.
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    Hi timber

    Interesting

    So.... the Fed is paying interest to the participating banks on a balance of 2.5 trillion. Where does the Fed get the money to pay that interest?

    Secondly, how would the Fed keep paying interest if/when the rates start to rise?

    [Also, what about the fact the Fed has provided those 'excess reserves' by not selling other assets i.e. unsterilized. It is a huge exercise in credit ... truly prodigious]

    My guess is the Fed is paying the interest by creating more debt for itself .... and further, if they raise the interest rate they will have to 'print' a bit faster... or... reduce the 'assets' held on their balance sheet [in other words, start withdrawing 'liquidity' ...ouch]

    With the real state of the US economy not reconcilable with official statistics [effectively lower wages for part time workers, a much reduced employment participation rate, food and power prices rising but not reflected in official inflation statistics, housing mortgages trending down ... etc] it is little wonder that the Fed is not talking about raising rates. Unwinding the 'grand experiment' seems a long way off.

    Here's a link for you.

    [I have the opinion that I have finally figured out why you are so sadly under-informed .... you do not read nearly enough ZeroHedge material ... so here you go .... might as well start in the deep end and try to swim to shore from there]

    http://cluborlov.blogspot.com.au/2014/10/peak-empire-take-two_96.html
 
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