Submitted by Michael S. Derby
New York (Reuters) -Respon’s Senator’s plan to deprive the federal reserves of the power to pay banks’ interest on cash, which they built in central bank books can lead to chaos to the money policy if it was implemented, said market players said.
In recent days, senator Ted Cruz from Texas spoke of this power and his desire to see how it ended as part of what he thinks that the federal government saves money. Last week, CNBC interviews will save the government $ 1 trillion in an interview with the CNBC interview, with the elimination of the long -term power. The senator said he did not know if his efforts were likely to be working, but it was certainly possible.
On Wednesday, Bloomberg reported that Cruz also lobby President Donald Trump, who had long objected to the Fed, as well as Republican colleagues about his idea. “We are tired of trying to find a $ 50 billion dollars here and there. It is more than a trillion dollars, big dollars,” said Cruz Bloomberg, saying about payments, “Half of it goes to foreign banks, which doesn’t make sense.”
Cruz’s office did not respond to the request to comment. Fed refused to comment.
Cruz’s efforts are cautiously treated by senator Tim Scott, Republican from South Carolina, chaired by the Senate Finance Committee. “Although the desire to return to the crisis policy procedures before the crisis is understandable,” this issue must be considered in accordance with the usual Senate procedures, the Scott report said. Any step to this has to start with listening, said Scott, adding: “This is not a solution that needs to be rushed – he has to be carefully considered and openly discussed.”
Fedo’s power to pay banks provided by Congress came into force in 2008, when the financial crisis emerged. It quickly emerged as part of the major overhaul of monetary policy architecture, as the Fed faced the biggest economic downturn against the Great Depression.
As it is now, Fed pays pay banks 4.4% of stocks. It uses another tool called the reverse rap device to get cash from money market funds and others, paying 4.25%. At the same time, both rates are intended to maintain the federal funds, the main tool for the central bank to make the economy the desired range.
Payment of financial firms for de facto cash loans is necessary for control of interest rate due to the very liquidity of the bond purchase stimulus. During the Covid-19 pandemic, the Fed has more than doubled its balance to $ 9 trillion dollars, and the purchases of assets provided support to the economy that exceeded the currently zero short-term price.