GOLD (COMEX) Quantitative Easing Revisited

Originally posted by Dazedandconfused ↑

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

Expand

Dazed

"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?"

The Fed is paying about $6.7 billion a year in interest on reserve deposits to the commercial banks. The Fed is receiving about $126 billion a year (my estimate based on 3% return) in interest from the bonds purchased under QE. You may notice that the Fed is making a huge profit out of QE.

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

The Fed sets the interest rate paid on reserve deposits. That rate will only go up when the Fed lets it go up. I estimate that the Fed has to raise the rate on reserve deposits from the current level of 0.25% to over 4.69% before they start losing money. In the most optimistic scenario, I don't see short US rates back at those levels in the next ten years.

The rest of your comments are based on the erroneous assumption that QE has a cost to the Fed, or you going off on a tangent about the US economy. Forgive me if I won't bother commenting on them.

Cheers