This “Rate
Hike” Is A Fraud
Paul Craig Roberts
December 17, 2015 "Information
Clearing House" -
The
Federal Reserve raised the interbank borrowing rate
today by one quarter of one percent or 25 basis
points. Readers are asking, “what does that mean?”
It means that the Fed has had time to figure out
that the effect of the small “rate hike” would
essentially be zero. In other words, the small
increase in the target rate from a range of 0 to
0.25% to 0.25 to 0.50% is insufficient to set off
problems in the interest-rate derivatives market or
to send stock and bond prices into decline.
Prior to today’s (12/16/15) Fed announcement,
the interbank borrowing rate was averaging 0.13%
over the period since the beginning of Quantitative
Easing. In other words, there has not been enough
demand from banks for the available liquidity to
push the rate up to the 0.25% limit. Similarly,
after today’s announced “rate hike,” the rate might
settle at 0.25%, the max of the previous rate and
the bottom range of the new rate.
However, the fact of the matter is that the
available liquidity exceeded demand in the old rate
range. The purpose of raising interest rates is to
choke off credit demand, but there was no need to
choke off credit demand when the demand for credit
was only sufficient to keep the average rate in the
midpoint of the old range. This “rate hike” is a
fraud. It is only for the idiots in the financial
media who have been going on about a rate hike
forever and the need for the Fed to protect its
credibility by raising interest rates.
Look at it this way. The banking system as a whole
does not need to borrow as it is sitting on $2.42
trillion in excess reserves. The negative impact of
the “rate hike” affects only smaller banks that are
lending to businesses and consumers. If these banks
find themselves fully loaned up and in need of
overnight reserves to meet their reserve
requirements, they will need to borrow from a bank
with excess reserves. Thus, the rate hike has the
effect of making smaller banks pay higher interest
expense to the mega-banks favored by the Federal
Reserve.
A different way of putting it is that the “rate
hike” favors banks sitting on excess reserves over
banks who are lending to businesses and consumers in
their community.
In other words, the rate hike just facilitates more
looting by the One Percent.
Dr. Paul
Craig Roberts was Assistant Secretary of the
Treasury for Economic Policy and associate editor of
the Wall Street Journal. He was columnist for
Business Week, Scripps Howard News Service, and
Creators Syndicate. He has had many university
appointments. His internet columns have attracted a
worldwide following. Roberts' latest books are
The Neoconservative Threat To
International Order:
Washington’s Perilous War For Hegemony,
The Failure
of Laissez Faire Capitalism and Economic Dissolution
of the West
and
How America
Was Lost.
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