Surprise! The Banks Aren’t Lending

For years now the U.S. has been letting banks borrow at near 0% interest in hopes they’ll lend to business to restore prosperity.  Fat chance.  A new Bloomberg article says the banks are taking that money and loaning it back to the government.  They do this by buying Treasury Bonds.  Since June the biggest banks have bought about $127 billion of Treasures, compared with $47 billion in the first half of the year.

This will only get worse with the new policy of QE2.  QE2 used to mean the ship the Queen Elizabeth the 2nd.  Now it stands for “quantitative easing”.   Obama is afraid to push for more stimulus, so his guys are going to try to get things moving through actions of the Federal Reserve.   The Federal Reserve (the central bank that prints up our money) will buy $600 billion in Treasury Bonds.  The value of bonds goes up and long term interest rate goes down.  Then companies all rush in to borrow money, expand operations and start hiring.  So goes the theory.   Or the banks could continue to do what they’re doing, go out and buy more Treasury Bonds.

Now where does the Fed get the $600 billion.  Out of thin air.  In the old days they would physically print the money.  Now it’s all done on computers.   The Fed creates the accounts and pours in the zeros.

Imagine what the U.S. government could do with $600 billion if it used it for public enterprise, to rebuild rotting water and gas pipes or to set up worker run businesses.  Instead paper chases paper and the corporate bonuses get bigger.

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