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Free Money Calculation: Fed Will Give $36.93 Billion of Taxpayer Money to Banks

June 14, 2018

Free Money Calculation: Fed Will Give $36.93 Billion of Taxpayer Money to Banks

The Fed upped the interest it pays on excess reserves to 1.95% today. This is free money (taxpayer funded) to banks.

The Fed bumped up the interest it pays on excess reserves today to 1.95%. Currently, excess reserves sit at $1.894 trillion.

The math is simple enough. At the current rate, the Fed will hand over approximately $36.93 billion of taxpayer money to banks. That assumes the status quo, but things will change.

Factors

  1. The Fed is shrinking its balance sheet slowly. That reduces excess reserves the Fed pays interest rates on.
  2. When the Fed hikes interest rates, it also increases the interest it pays on excess reserves.

The first point acts to reduce free money, the second acts to increase free money.

Note to ECB

If you want to recapitalize Italian banks, just give them free money instead of your profit-reducing policy of holding rates negative.

Taxpayer money?

Yes! Otherwise the Fed would return this money to the US Treasury.

Some claim free money is paying banks to not lend. The claim is fallacious. Banks do not lend from excess reserves.

That was the amount I calculated on April 17, 2017. Interest then was 1.0%.

Even though the Fed’s balance sheet is lower, the increased rate bumped up the free money calculation to $36.93 billion.

No Outrage!

Why isn’t $36.93 billion in free money to banks an outrage?

What Could Go Wrong? For Public Pensions, More Than You Know

September 28, 2017

What Could Go Wrong? For Public Pensions, More Than You Know

Here’s a loaded question for you: “What could go wrong?”

In some contexts, it can express mistaken confidence, as in, “Sure I’ll put my hand between that crocodile’s jaws. What could go wrong?”

Investors should ask the same question before entering a position. “What risks am I taking with this trade? What could go wrong if it doesn’t go as planned?”

But here’s the problem: What if you never think to ask the question because you have no idea you’re in that trade?

And guess what—this is your problem if you are a taxpayer anywhere in the US.


Photo: DWS via Flickr

Pension Pain

Part of my job is helping John Mauldin with the research for his Thoughts from the Frontline letters. Regular readers know John isn’t a doom-and-gloom guru. He’s optimistic on most of our big challenges.

Except for a few things—like the brewing state and local pension crisis.

The more John and I dig into it, the worse it looks. We have both spent many hours trying to find any good news or a silver lining, without success.

All over the US, states, cities, school districts, and other governmental entities have promised their workers generous retirement benefits, but haven’t set aside enough cash to pay what they will owe. At some point, perhaps soon, either they will have to cut benefits to retirees or stick taxpayers with a huge bill, or both.

You can read John’s September 16 letter, Pension Storm Warning, to learn more. Then you’ll see why he says to Build Your Economic Storm Shelter Now.

What else could go wrong? Plenty.

…click on the above link to read the rest of the article…

Bombardier investment launches Quebec into battle with aerospace giants: Don Pittis

October 30, 2015

Bombardier investment launches Quebec into battle with aerospace giants: Don Pittis

Is challenging Boeing and Airbus a savvy investment or a waste of taxpayer cash?

Fred Cromer, president of Bombardier Commercial Aircraft, presents Swiss Airline's new Bombardier CS100 aircraft. But delays in readying the CSeries for passenger service allowed giant competitors Boeing and Airbus to get a head start in selling into the same niche.

Fred Cromer, president of Bombardier Commercial Aircraft, presents Swiss Airline’s new Bombardier CS100 aircraft. But delays in readying the CSeries for passenger service allowed giant competitors Boeing and Airbus to get a head start in selling into the same niche. (Reuters)

In some ways it feels like throwing good money after bad.

The same day that Canada’s leading transport manufacturer, Bombardier, announced $5 billion US in losses, Quebec taxpayers have invested more than $1 billion of their own in the company.

And despite a backlash from many Quebecers who think there are better things to do with a cool billion, the Quebec government may have made a smart investment in its future. But as Bombardier goes head to head with the world’s biggest aircraft makers, there’s no question it is a gamble.

In the short term it is a certainty that keeping Bombardier’s aircraft development program alive will be good for Quebec’s economy, specifically in terms of jobs.

“The government’s stepping in because there’s about 17,000 to 18,000 Bombardier jobs in Quebec,” says McGill University’s Bombardier-watcher Karl Moore. “When you look at the tier-two suppliers, there’s probably about 40,000 people in Quebec who make their living from Bombardier.”

Lots at stake

CSeries interior

The CSeries is the biggest commercial airline Bombardier has made. It will have to go head to head with new aircraft just released by Boeing and Airbus that use the same quiet engine. (Bombardier )

But as usual with such investments, if it were merely a question of a few years’ worth of  jobs, there might be a cheaper way to inject that money into the Quebec economy. There is much more at stake.

…click on the above link to read the rest of the article…

H.R. 4681 Passes Congress – Justin Amash Calls It: “One of the Most Egregious Sections of Law I’ve Encountered During My Time as a Representative” | Liberty Blitzkrieg

December 13, 2014

H.R. 4681 Passes Congress – Justin Amash Calls It: “One of the Most Egregious Sections of Law I’ve Encountered During My Time as a Representative” | Liberty Blitzkrieg.

Decency, security, and liberty alike demand that government officials shall be subjected to the same rules of conduct that are commands to the citizen. In a government of laws, existence of the government will be imperiled if it fails to observe the law scrupulously. Our government is the potent, the omnipresent teacher. For good or for ill, it teaches the whole people by its example. Crime is contagious. If the government becomes a lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy. To declare that in the administration of the criminal law the end justifies the means — to declare that the government may commit crimes in order to secure the conviction of a private criminal — would bring terrible retribution. Against that pernicious doctrine this court should resolutely set its face.

–  Louis Brandeis, Supreme Court Justice, in 1928

While most Americans are busy Christmas shopping and making preparations for trips to see family, Congress remains hard at work doing what it does best. Giving gifts to Wall Street and trampling on citizens’ civil liberties.

I knew the plebs were about to be royally screwed a week ago when I published the post: Wall Street Moves to Put Taxpayers on the Hook for Derivatives Trades. The piece concluded with the following:

Remember what Wall Street wants, Wall Street gets. Have a great weekend chumps.

Naturally, Wall Street got what it wanted. In fact, this provision was so important to the financial oligarchs that Jaime Dimon called around to encourage our (Wall Street’s) representatives to support it. TheWashington Post reports that:

…click on the above link to read the rest of the article…

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