He's starting to take some more heat as we all know, unemployment is stuck at near 10%. Yahoo! has a story here, with an interesting excerpt:
Even with interest rates effectively at zero, Bernanke argued there is more the central bank can do if needed to spur growth.
One possibility would be to lower the rate it pays banks to park excess reserves at the Fed, currently 0.25 percent. Asked by a legislator why the Fed continues to pay banks to keep their money idle despite weak lending conditions, Bernanke said cutting the rate carries risks.
"If rates go to zero there will be no incentive for buying and selling federal funds, overnight money in the banking system and if that market shuts down ... it'll be more difficult to manage short-term interest rates," Bernanke said.
I conclude that Bernanke is effectively saying that The Fed's monetary policy now exists not to support US economic outcomes that achieve full employment with price stability, but to ensure a liquid Fed Funds market!
Ben, where are the rates going to go!?
Matt
ReplyDeleteDid anyone find out finally where all that secret bailout monies spread out in late 2008 went to ?
which countries, which banks, etc ?
there was TARP and then bailout funds, plus what else ?
TARP went to who ?
Did Royal Bank of Scotland get any?
And now they want to sue Goldman ?
Antisemitism is probably rising now in Greece, Germany and Scotland ....
That's an insane statement by Bernanke. It shows that he doesn't even know what the Fed's function is or, is afraid to run the Fed as it should be run--lender of last resort and interest rate setter. Same thing happened when Geithner was President of the New York Fed and he couldn't keep the funds rate at target. How hard is that???? If you want a funds rate at 1%, the Fed is there all day long willing to lend or accept funds in any quantity at 1% and that's that!
ReplyDelete@Goog,
ReplyDeletethe best site I found for bailout info is Propublica.org
If RBS got any it is probably thru the AIG channel.
I havent detected any anti-semitism here in US in all of this but we havent really implemented austerity yet like they have in Greece.
I hope the austerity is all talk no action. Mike is on it thru his Fiscal Digest he publishes and if they cut back it will soon show up in his reports.
@Mike,
I hope Congress starts to see finally after 2 years that the mainstream explanations and remedies are not working and they start to look for alternative opinions that will lead them to the fiscal policy.
Anyway STAY COOL you guys! Its going to 100 degrees this weekend in the Mid atlantic..
Resp,
yeah! i'm goin' to the beach!!
ReplyDeleteI can confirm that some Greeks first pushed the "nazi" term to the northern austerity freaks in Germany, and now that the Royal Bank of Scotland is targeting Goldman as well as Greek investor agencies too -
ReplyDeletenow the term will go from "nazi's did it" to something else.
watch out for greeks/scots bearing gifts of debts !!!
How does the Fed Funds market work? It would seem like the simplest arbitrage in the world for banks to borrow at the lower fed funds market overnight rate and then lend at the higher LIBOR market rates. But it can't be that simple, can it?
ReplyDeleteTB,
ReplyDeleteAs I understand it the FF market is strictly an inter-bank market rate for regulatory reserves only. IOW banks that have excess regulatory reserve balances can lend them to other banks that are temporarily short of required reserve balances for the overnight so they can close the books for the day and comply with reserve requirements.
These days in the US, with all of the financial assets the Fed has purchased (over $1T) in its so called credit easing program last year, that has left over $1T in excess reserves in the system, so its hard for me to believe that a bank could possibly be short of reserves these days but I guess that could happen.
In any case, in late 2008, the Fed also has received the ability to pay interest on required reserves and excess reserves directly to the banks, and I believe they have been doing that. So you would think that would jeopardize the inter-bank FF market because why would a bank lend FF to another bank when it could just earn that directly from the Fed?
As far as LIBOR which is the London Inter-bank Offered Rate, your right since this is a bank to bank lending rate, the overnight LIBOR should about mirror the regulatory FF rate, any deviation supposedly indicates a level of distrust between banks, they think the borrower might go the way of Lehman Bros. and they demand a premium on the rate. So now they probably could make some money that way.
But I would point out that the FF rate is not like the banks borrow funds at that rate and then "lend them out", banks only use the FF market to borrow regulatory reserves from each other, they dont "lend out reserves". Banks basically are capital constained for all commercial lending. Not reserve constrained.
Resp,