[I had fun explaining basic monetary economics to Ms. Clark.] http://www.marketplace.org/topics/economy/feds-new-tool-negative-interest-rates
The Fed's new tool: Negative interest rates? by Krissy Clark Marketplace Morning Report for Monday, July 30, 2012 • Transcript Jeremy Hobson: The Federal Reserve meets again this week, and the buzz is that Chairman Ben Bernanke could be considering some "new tools," for stimulating growth -- perhaps using interest rates to encourage banks to take some risks with their money. One way to do that, is to make the interest rate negative -- as Marketplace's Krissy Clark reports. ________________________________________ Krissy Clark: The interest rate we're talking about here is the one the Fed offers banks to hold something called "excess reserves." That's the extra money banks keep just in case a whole bunch of people decide to withdraw cash all at once. As a safety measure during the financial crisis, the fed was offering a bit of interest on those reserves -- a sort of reward for being cautious, according to Loyola Marymount economist James Devine. James Devine: Which means that they're not lending out that money. And that's become it's [sic] own problem -- because as you may have noticed, ithese [sic] days it's hard for anyone to get a loan; to buy a house, or start a business; or do something -- anything -- that might stimulate the economy. So, what the Fed could do now, says university of Oregon economist Tim Duy is lower the interest rate on those reserves. Tim Duy: And in theory, you could make that that a negative number. Meaning, basically, the Fed would be charging banks for keeping too many reserves. Which might goose them to start lending again. [attributed quote from me. I even used the word “goose.”] The risk with this tool? It might discourage banks from keeping any money at all in the Federal Reserve, and that could cause a whole other set of problems. I'm Krissy Clark for Marketplace. -- Jim Devine / If you're going to support the lesser of two evils, you should at least know the nature of that evil. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
