Thanks for Your Money, says the Fed, Here’s Nothing in Return

in money market funds have now been told they will continue to see the government borrow their money for free.

The reason the economy is not recovering is that consumers are "deleveraging", as economists term our newly adopted practice of paring our mortgage and credit card debt, rather than spending. Is it any wonder why we do so, as we watch the Fed doing its utmost to see to it that no one makes any money from the money we lend?

Seniors, especially, have been hard hit. Never in their lifetimes had they heard of zero interest rates, except maybe in inscrutable Japan, and they have additionally been nicked by the suspension of the annual Social Security cost-of-living increase for the past two years. On top of that comes the fear that the "entitlements" they have been paying for all their working lives are likely to be "adjusted".

The banks, however, are doing just fine, you will be glad to hear. They borrow money from the U.S. government at 0% interest, then use it to buy treasury instruments that pay 2%-3% percent interest, as explained here. They can even multiply their money by leveraging, using the instruments they just bought as collateral to acquire still more treasuries. Why tie up money loaning to businesses so the economy can grow when there's money for nothing to be had?

Corporations can borrow cheaply — and spend the money expanding abroad.

The Fed's stance is entirely unbalanced, enriching the banks on the backs of the citizenry while corporations, sitting on mountains of cash, have no incentive to spend because money is being siphoned away from consumers, killing the demand that might cause them to ramp up production and hire.

Moreover, just as it is irresponsible of presidents and Congress to promise never to raise taxes, so is it irresponsible of the Federal Reserve to make such pledges for an unknowable future.