The Progressive


A project of Common Dreams

For Immediate Release
Contact: Sam Husseini, (202) 347-0020; or David Zupan, (541) 484-9167

"Deception and Abuse at the Fed"


The Senate voted yesterday to approve a second term for Ben Bernanke as Federal Reserve chairman.

Professor of public affairs at the University of Texas at Austin, Auerbach is author of the book Deception and Abuse at the Fed. His recent articles include "Stop the Federal Reserve From Shredding Its Records."

Auerbach said today: "The Fed has no effective way of examining
these monstrosities that its policies have allowed to become so large
-- like Bank of America or Citibank or Goldman Sachs.

"With bank reserves rising from $68 billion in September 2008 to
an astounding $1.14 trillion in December 2009, what has been the Fed's
real interest policy since September 2008? It began to pay interest on
their reserves, a clear incentive to hold the reserves rather than to
lend them.

"William T. Gavin, a Federal Reserve economist, wrote: 'First, for
the individual bank, the risk-free rate of 1/4 percent must be the
bank's perception of its best investment opportunity.' (March/April
2009 St. Louis Federal Reserve Review)

"The Federal Reserve should phase out these interest payments and
end Chairman Bernanke's false argument (National Press Club luncheon,
February 18, 2009) that the billions of dollars in interest payments
are a method of insuring banks do not lend at a lower rate. Given that
the target Fed short-term interest rate is zero to 1/4 of one percent,
is he afraid the banks will pay borrowers to take the reserves at less
than zero percent interest if the Fed does not pay interest on them?"

See "Did Ben Bernanke Pull the TARP Over Eyes?"

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