Fed Has Created an Inflation 'Time Bomb'
The Federal Reserve has created a "stimulus hoax" and an inflation time bomb that may cause an economic disaster, says a University of Texas professor of public affairs.
As the Fed embarked on its stimulus endeavor, excess reserves banks hold at the Fed exploded from $1.9 billion in August 2009 to over $2.2 trillion as of September 2013, making up almost 84 percent of the monetary base, points out, writes Robert Auerbach in an article for the Huffington Post.
Banks do not pump those reserves into the economy by lending the money to consumers or businesses. Instead, they hold them as excess reserves because the Fed decided in October 2008 to pay them interest on reserve balances, Auerbach explains. Banks see that risk-free 0.25 percent rate as preferable to lending the funds out to consumers or businesses.