As I’ve noted for years, the government has been guaranteeing that the big banks make money at taxpayer expense by loaning money at very low interest rates, and then letting the banks loan the money back to the government at much higher interest rates.
For example, as I pointed out in January:
Bloomberg notes:
“The trading profits of the Street is just another way of measuring the subsidy the Fed is giving to the banks,” said Christopher Whalen, managing director of Torrance, California-based Institutional Risk Analytics. “It’s a transfer from savers to banks.”The trading results, which helped the banks report higher quarterly profit than analysts estimated even as unemployment stagnated at a 27-year high, came with a big assist from the Federal Reserve. The U.S. central bank helped lenders by holding short-term borrowing costs near zero, giving them a chance to profit by carrying even 10-year government notes that yielded an average of 3.70 percent last quarter.
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Low interest rates aren’t really helping the economy. Its not stimulating borrowing, because in a balance sheet recession the publics borrowing demand is weak. But it does penalize savers and strip billions out of the economy.
Higher rates and higher deficits, but higher quality govt spending (payroll tax holiday should do) or non govt spending would help.
Austerity plus low interest rates isn’t where its at