Jul
31

Money for Nothing

On 7/5/12 the ECB reduced to zero the rate it pays banks that park excess reserves with it. The Fed is now considering following suit. There are $1.5 trillion of excess reserves at the Fed which if loaned, would help the economy. But the Fed won’t, as it will not increase lending much and would probably force money-market rates negative, causing all sorts of unintended consequences elsewhere in the economy.

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