The Monetary Base Has Been Expanded By Roughly $1Trillion
The monetary base has been expanded by roughly $1Trillion (more than double) since last September. Check it out for yourself at http://www.federalreserve.gov/releases/h3/Current/h3.htm. This freshly printed (keystroked) money was handed over to the big banks and used to shore up their balance sheets. As they lend it out, that new money will make its way though the various orders of goods and services (a process known as ‘velocity’), driving up prices along the way. When this inflation comes (and you are seeing it already with the stock market, medical costs, the relation of housing, oil, etc.) how will the Fed deal with it? How will they pull liquidity out of the system?
Well, in 2008 the Fed devised a scheme whereby they can pay interest on bank reserves held on deposit with them. So when the inflated monetary base starts working it’s way into the economy, the Fed can suck it back out by merely increasing the interest rate paid to bankers for keeping their cash on deposit with the Fed.
What are the implications of this?
1. Does it not still create even more money in the form of monetized interest payments?
2. Will the Fed get in a vicious spiral whereby they chase the market interest rates up?
3. Will the Fed’s lucrative rates be made available to slobs like you and me?
Hmmm.
