The Question Someone Should Have Asked Janet Yellen

In her testimony today Chairwoman Yellen reiterated something she has said before which is that if the economy improves, in order to manage the excess reserves currently parked at the Fed by Money Center Banks, the Fed will use the newly created (in the wake of the 2008 crisis) power to pay interest on excess reserves.  Currently the Fed pays 25 bips on about 2.8 Trillion dollars in excess reserves.  That is something like $7 Billion a year, a drop in the scheme of things, even for big bank earnings.  But imagine if things change and rates do rise and the economy charges ahead.  For every 1% rates rise, the Fed will be paying out $28 Billion or more per year in interest to banks.

Does Janet Yellen really think that the Fed can do that, and have bank executives paying themselves large bonuses, without a violent reaction from the people of the United States?  So I would like someone in Congress to ask her how the IOER thing will actually work, and whether it will really mean watching the spectacle of giant banker bonuses paid for by the Fed.  This might cause the morons to wake up a bit.

Comments are closed.