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Tuesday, June 1, 2010

Federal Reserve Announces New Bailout Trick

This story was very funny. Banks may now make term deposits at the Federal Reserve, earning interest. The maximum interest rate is 0.75%, the current Discount Rate. Do you see the bailout?

Large banks may borrow at the Fed Funds Rate, currently 0.25%. Therefore, large banks can borrow at the Fed Funds Rate and lend that money right back to the Federal Reserve. This is a guaranteed riskless profit for the banksters.

The interest rate on these "term deposits" will necessarily be greater than corresponding Treasury Notes. Otherwise, banks would buy Treasury Notes instead of making a term deposit at the Federal Reserve.

This program is a pure bailout for banks. They are borrowing at the Fed Funds Rate and lending at the "term deposit Rate". Only the largest banks may borrow from the Federal Reserve directly at the Fed Funds Rate. Other banks pay higher rates.

The Federal Reserve insiders keep coming up with new tricks. The reason is that an old program is too closely associated with evil. New names for "print money and give it away" must be continually invented.

I like the way the Federal Reserve spokesman says "We're removing excess liquidity." The reality is that the Federal Reserve is literally printing money and giving it away to the banksters.

1 comment:

JStrok said...

The truth is that they cannot allow for the removal of inflated currency. As is nature of the interest paradox, we can never allow for the contraction of the currency without allowing a recession.

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