Robert Molineaux - Comments

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A Scary Monetary Conundrum Arises From The Great Recession
5 years ago

This is the first item I have seen that attempts to deal with the effect of interest on reserves. When first installed, I was puzzled by the apparent application of a deflationary tool, when the stated objective of the Fed was to encourage bank lending. I concluded that the IOR was put in place with little thought to consequences, and merely intended as a gift to the commercial banks in their moment of need. It now appears to have metamorphosized into one more tool to control short term interest rates. Maybe this is not the worst possible result since the banks have been using their lending power, not to encourage capital investment, but rather to fund corporate stock buybacks.

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