On Oct 26, 2009, at 9:37 AM, Marv Gandall wrote:
Sabri writes:
Another thought!
Maybe, the Fed is doing this intentionally, although there is
politics
involved in this, so one needs to be careful with using words such as
intentional. This sounds like a good way to increase the banks'
capital
without increasing the money supply drastically.
===========================
At the outset of this thread, I suggested that "interest now being
paid on
the reserves is a means of keeping them out of circulation, a form of
sterilization."
The Richmond Fed's Jeffrey Lacker noted in a speech last year that
"lending
for extended periods requires offsetting reserve drains in order to
maintain
the federal funds rate target.
Yes. The point of paying interest on reserves was mainly technical, to
maintain the fed funds target close to 0. From Wall Street's point of
view, the amounts of cash are pocket change.
Doug
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