Federal Reserve Economic Stimulus Plan Goes Negative!

The Federal Reserve economic stimulus plan is edging toward the Twilight Zone now that the Fed sees its recovery about to be eaten by an economic apocalypse greater than its imagination could conceive. Though many think of central bankers as stogy and uncreative, the Fed has been quite creative when it comes to massive economic ideas that don’t work or are extremely repressive to normal market functioning.

Take for example this one:

Federal Reserve Economic Stimulus Plan I

I would summarize all of the Federal Reserve’s past economic stimulus plans as follows: The best way to solve a housing market crisis that comes from too many bad loans that were made due to lax credit terms is to keep credit terms fairly loose, make sure housing prices stay inflated to where no one can afford a house without those loose terms, lower interest rates down to zero, and then give banks trillions of free dollars to loan to people who are already up to their ear holes in debt, but allow the banks, if they wish, to invest that money in stocks, instead. (This is the plan I formerly called “Goliath.” Shove the debt accelerator all the way through the floor while steering hard toward the bank vault.)

Somehow, Ben Burn-the-banky and his Fed friends imagined that would work. Nobody knows why, but you can only blame them for trying. All they got was a pile-up of money in the bank vaults.

Federal Reserve Economic Stimulus Plan II

Unfortunately for the Federal Reserve, Economic Stimulus Plan I failed because no citizens wanted the extra debt, given that they were already drowning in debt. They couldn’t hear the Fed’s enticements to spend because the debt was over their ears. So, the board members of the Federal Reserve looked around and said, “What else can we do?”

“Hmm,” they said, “Europe has tried negative interest rates, and it hasn’t worked well for them. Maybe we should try that. Japan and China have decided to do the same. We don’t want to be caught with our skirt up here as the only nation that didn’t try it.” Afraid to look like they haven’t tried all bad ideas imaginable, they have decided to test it.

The Federal Reserve has been down at zero interest. What that means is that they try to jockey the interest rates that banks charge each other (the Fed Funds Rate) for overnight loans from their reserve accounts. Banks must keep money  in reserve accounts with the Federal Reserve to back their loans (roughly 10% of all that they have out in loans to consumers and businesses). If they have more money in their reserves than they are required to have for the amount of loans they have out, they can loan their excess to other banks. The Fed manipulates the money supply to where banks will basically loan their surplus money to other banks for free. Zero interest on the Fed Funds Rate.

When the Federal Reserve tries to set negative interest rates it is trying to create a situation in which one bank will actually pay another bank to borrow some of its money. The Fed does this by charging banks interest on the money they are required keep in their reserve account, giving them incentive to shove any surplus off to other banks.

Unfortunately, negative interest doesn’t mean that the interest rates on loans that banks make to you will now become negative to where banks pay you to borrow money. (While banks have been getting free money from the Fed for a long time, free money stands a popsicle’s chance in the desert of trickling down out of a banker’s hand to you.) You might have thought that, since the more the Fed moved toward zero interest, the less you paid on loans.

No, the Fed switches gears entirely when it goes to Negative Interest Rate Policy (NIRP). What the banksters intend to do is to pay you negative interest on the money you keep deposited in the banks. Negative interest is newspeak actually means the banks will start charging you interest on your savings. The theory is that, if the Federal Reserve starts charging banks interest on their reserve accounts, they will be inclined to charge you interest since you are where some of the money comes from. (While profits rarely trickle down, costs almost always do.)

The thought is that you won’t want to keep any more money in the bank than you have to, so you’ll keep your money in play. The Fed’s goal is to wring the very last pennies out of the bank and get them into circulation — but not the bank’s pennies so much as yours. You see, the Fed gives banks money in hope that they will loan it out to get it in circulation; but the banks have said, “No, that’s easy money; we’d rather just hang on to it. So, the Fed wants to stimulate the banks into circulating this money now.

You see, you are the problem. Savers do not participate fully in the debt-based scheme of our monetary system. Banks no longer consider it a privilege to hold your money. While that was going out of style even before the Great Recession, it became increasingly a burden to have to take your money when the Federal Reserve was giving away money in far greater amounts. It wasted processing time on trivial sums compared to the huge flow of money the Fed was depositing for free.

Moreover, it was also a burden to try to make money by loaning you money once banks were now allowed to play the stock market where they could make a lot more a lot faster than your pokey little 4% interest home mortgage would ever make for them. In fact, they flush those loans out of the system as fast as they can by shoving them off to some other Fascist (government-private) enterprise called Fannie Mae, who pays the banks for these miserable loans, which the Federal government agrees to insure with bailouts in case the paltry loans fail. Banks want nothing to do with them unless they provide easy pass-through revenue because they can quickly wholesale them to Fannie and her husband Freddie Mac. (We won’t even get into his adulterous affairs with government officials.)

Now, if you’re aware of the fact that the Federal Reserve has required banks to build up larger reserves in order to be more solvent in a crisis, this may all seem hideously convoluted. You may naturally ask, “Why would the Federal Reserve want the banks to move out their reserves if they’ve been trying to get them to increase reserves?”

Well, you see, the problem there is that you ask too many reasonable questions, for which the Fed has no reasonable answers. We’re now entering the Epocalypse, and it’s time to wring that money out of the banks because things are going down again; but more importantly out of you. There is not even any point in trying to think of a reasonable explanation for why the Fed would want to flush as much money out of the banks as it can now that we are entering the Twilight Zone of a crashing global economy where there could be runs on banks.

I know I’m not going to bruise my brain trying to figure out why this makes sense just to help others avoid the pain of figuring it out. As nausea grows from trying to explain it thus far, one easy explanation rises to the top of my head, which is that, until you spend all the money you have in the bank, you’re not going to take out any more loans; and our monetary system is constructed around the principal that the only way the Federal Reserve gets money into the system is by making loans. (Or maybe the best explanation is simply that the greatest national bankruptcy is in rational thought at the Federal Reserve.)

Our debt-based financial system has reached the end of its expansion programs when you no longer wanted any more loans, even if they were cheap because you had enough, thanks.

You see, you’ve been a good person — or thought you were — and have been saving for a rainy day. Janet Yellen and her friends at the Federal Reserve believe you should be punished for that. You’re gumming up the mechanism by which they get money flowing into the economy. The Fed’s mojo isn’t flowing because of you!

Even though almost none of the trillions of dollars Yellen & Co. have manufactured have gone into your hands because they all went into stocks and bonds owned largely by banksters, it’s still your fault as far as the Fed’s concerned. It’s important to get you — the “consumer” — to loosen up in order to get a little velocity going as money starts to move through the system.

“Consumer” is a word for “citizen” or “person” that I don’t particularly like because it sounds like your only value is how much you eat and how much real estate you take up. That, of course, is your only value to the Fed, wherein the idea is that the more you eat, the more real estate you will take up. You’ll need a bigger bed and a bigger car and a bigger house, more seats on the plane etc. All of the means more loans to get money into the economy. Your value to your country increases the more rotund you get. The whole economic system only works so long as you are stuffing down Tinkies and Tauruses. They need to get you Fed up.

As it turns out, Federal Reserve Economic Stimulus Plan I failed because you, the “consumer,” didn’t cooperate. Simpleton that you are, you acted in a manner considered prudent by ordinary citizens in times like these. The main thing you need to know is that the Fed’s plan didn’t fail because the Federal Reserve is wrong or because a debt-based monetary system is a totally screwed-up idea in the first place. It failed because you don’t eat enough.

The most important thing to know is that it’s not their fault.


Creature from Jekyll Island: A Second Look at the Federal Reserve. “Reads like a detective story. You’ll never trust a politician again – or a banker.”


Read the rest of David Haggith’s article at: http://thegreatrecession.info/blog/federal-reserve-economic-stimulus/