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Paul Craig Roberts On Who Really Benefits From The Rate Hike
Authored by Paul Craig Roberts,
What Does Today’s “Rate Hike” Mean?
The Federal Reserve raised the interbank borrowing rate today by one quarter of one percent or 25 basis points. Readers are asking, “what does that mean?”
It means that the Fed has had time to figure out that the effect of the small “rate hike” would essentially be zero. In other words, the small increase in the target rate from a range of 0 to 0.25% to 0.25 to 0.50% is insufficient to set off problems in the interest-rate derivatives market or to send stock and bond prices into decline.
Prior to today’s Fed announcement, the interbank borrowing rate was averaging 0.13% over the period since the beginning of Quantitative Easing. In other words, there has not been enough demand from banks for the available liquidity to push the rate up to the 0.25% limit. Similarly, after today’s announced “rate hike,” the rate might settle at 0.25%, the max of the previous rate and the bottom range of the new rate.
However, the fact of the matter is that the available liquidity exceeded demand in the old rate range. The purpose of raising interest rates is to choke off credit demand, but there was no need to choke off credit demand when the demand for credit was only sufficient to keep the average rate in the midpoint of the old range. This “rate hike” is a fraud. It is only for the idiots in the financial media who have been going on about a rate hike forever and the need for the Fed to protect its credibility by raising interest rates.
Look at it this way. The banking system as a whole does not need to borrow as it is sitting on $2.42 trillion in excess reserves. The negative impact of the “rate hike” affects only smaller banks that are lending to businesses and consumers. If these banks find themselves fully loaned up and in need of overnight reserves to meet their reserve requirements, they will need to borrow from a bank with excess reserves. Thus, the rate hike has the effect of making smaller banks pay higher interest expense to the mega-banks favored by the Federal Reserve.
A different way of putting it is that the “rate hike” favors banks sitting on excess reserves over banks who are lending to businesses and consumers in their community.
In other words, the rate hike just facilitates more looting by the One Percent.
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PCR always brings clarity. Even when he uses words like insouciant
and look at where gold & silver are going this morning, down the shitter!
Yesterday we had an article that said the FED would need to drain about 1 trillion in excess reserves to efect this .25% rate hike. We also had an article that indicated that we can expect 4 more similar sized rate hikes before the end of the year. Doesn't that mean all of the 2.5 trillion in excess reserves will get reeled back in to the FED by years end?
They do need to drain $1.6 tr but they won’t. The Fed has already put restrictions on the asset selling. They will do just enough to look they are doing their job and not $1 more. We are going into recession and the rate hike will be an “I told you so” excuse for more QE. Look for QE $1.2 tr in 2016.
If it benefits everyone, it won't be capitalism. It will be socialism.
Everyone benefiting from capitalism is just a byproduct not built into the system.
Borrowers' interest rates already rising, but savers' rates aren'thttp://www.usatoday.com/story/money/personalfinance/2015/12/16/borrowers...
I'd say closer to $2T.
This economy has only one way to go and that is down.
A .25% interest rate increase increases US debt payments by $45 Billion per year. That's 45 Billion more the FED will have to eventually counterfeit. So, dollar price drops in commodities are like a going out of business sale.
PCR was wrong about the rate hike.
Just to be clear.
http://usawatchdog.com/fed-most-certainly-will-not-raise-interest-rates-...
ive heard both PCR and peter schiff say for years that the fed would never raise rates. they both changed their tune slightly in the last two weeks saying that it's a possibility. both also said that it's likely that even such a ridiculously small token rate hike would probably be a short term credibility thing that will make them look slightly better when the next big event, financial or otherwise, forces them to start qe4.
would make sense given what we know about the criminals. hike rates 25bps knowing that something really bad was about to happen so the fed can say "see we were raising rates and would have continued had (insert false flag) not occured!"
It's not the amount it's the action.
Eventually that will stop being the case. Raising rates a miniscule amount and seeing the inevitable negative reaction is a possible catalyst for the return to reality.
But he's not really wrong, a .25% rate hike is basically the same thing as no rate hike. If they had raised it .01% would you still be saying he's wrong?
Incoming analogy: You tell your kid to go clean up all the blocks in his room. Kid picks up one block and puts it away and says he cleaned up. Did he really?
The effects of the rate hike have yet to have materialized.
He's just explained how there has been no such interest rate hike... in the above piece
He is trying to say that even though he is wrong he is sort of right. I don't pay much attention to anyone who thinks they know a lot about the economy. They almost always only pretend to know what is going to happen after it happens.
Surprise Surprise
Short, to-the-point and balls-on accurate.
I just wish he had pointed out that this is also a big reason why you will not be seeing the rate paid on deposits (time deposits or demand deposits) moving up any time soon either.
BANKS DON'T NEED YOUR DEPOSIT MONEY.
BANKS DON'T WANT YOUR DEPOSIT MONEY.
To them, deposits are a liability. They don't want your money at all. Just as, if you have a credit card and pay off the balance every month, they call you a deadbeat and look for any way they can possibly get you to pay them some fees.
I liked the olden days when banks lent money to people who wanted to do productive things or buy houses....
They should split banking into two groups:
1) Old style banks
2) New style banksters who are just financial engineering powerhouses.
Hey did Glass-Steagal do somehting like that?
People, small business' and Corps. continue to keep $$$ in TBTF's
Big Corps. we can do nothing about. Why any person or small to medium sized business would keep their deposits anywhere but a small local bank or credit union is so far from unbelievable that it makes this mess we are in a bit more understandable. SHEEP
True, they never wanted deposits, but it's a necessary evil to stay above the legally mandated RRR. I'm sure they're very happy they'll never have to pay you a plug nickel ever again on your deposits until they've loaned out that whole $3T they're sitting on in excess reserves.
Disagree. The more in reserve the more fiat they can frac create out of thin air.
They dont want you to go thinking its 'yours' though...
''The world is going to tire of usury as interest service strangles the life out of the real economy. I would not want to be a member of a group historically associated with banking and usury when that time comes.''
trav7777
http://www.zerohedge.com/article/pimco-sees-uk-rating-downgrade-probabil...
The banksters are the economic locust.
Strip the areas they touch bare.
Damnit Janet Spews Forth:
http://winteractionables.com/?p=28771
Brutal War Troll
Look at Gold and Silver and tell me which banks are short PM's and you will see how this sytem of Tribal fraud works.
trav7777 at his wicked best.........fans of trav7777 will want to read the entire thread
''we have too many jews in finance and media who are wicked people. I've never said we just plain have too many jews. But we could surely use more diversity in media, finance, and race hustling. Ok, maybe we could do without that last one.''
''The solution is not to pretend that jews don't dominate these parasitical industries, the solution, as I've said to jews that I know, is for JEWS THEMSELVES to clean up their fucking act before some shit happens that they ain't gonna like.''
http://www.zerohedge.com/article/chris-martenson-and-james-howard-kunstl...
“A capitalist may wish to sell drinking water, but Mammon wants to poison all water in order to force everybody to buy drinking water. A capitalist may build the mall; Mammon wants to destroy the world outside the mall, for the outside world interferes with the only meaningful occupation, shopping…Mammon will try to eliminate every distraction to shopping, be it churches, art, forest, rivers, seaside, fresh air, mountains.”—Israel Shamir[1]
http://www.veteranstoday.com/2013/05/27/ayn-rand-usury-and-capitalism-an...
Man, those were the days when you could really see an argument develop.
pods
Wow, I'm not sure what prompted you to post this but, thanks for doing it. I hadn't noticed trav7777's comments before but his logic and reasoning skills are superb.
I really liked this critique:
Buddy, you got mindfucked somewhere along the way and you aren't thinking straight. You had a pavlovian reaction to my original post, responded with a conditioned response, and when I specifically asked you to review your evidence for corroboration, you encountered cognitive dissonance. This is a sign that you are having trouble reconciling your emotions with your logic.
Awesome!
Hey Charlie err, Mike. Trav was gone before you got here. That's why you didn't notice.
Wher did trav7777 go?
Looters be lootin'
Okay Paul, tell you what motherfucker, let everybody create their own money!!!
Yeah, that will "fix" it.
We are now all "Chosen Ones". Step aside, Bibi. Shame on you, Merkel.
A good point but raising interest rates is the right thing to do for the long term. In the short term other shit might happen. If we got rid of the welfare state today there would be all kinds of side effects but would it be a bad thing. An economy cannot run upside down and the rates will need to come up, I just don't expect them to stay up. This economy is too weak, too over regulated, too distorted, the American people are too stupid.
The debt 'user' over dosed on usury in 2007-08(debt peak). This action is the equivalent of the band playing on after the Titanic hit the iceberg.
Nearer my God to thee.
https://www.youtube.com/watch?v=_SoU4qzZlcw
How Usury Encloses The Commons
https://realcurrencies.wordpress.com/2014/11/15/how-usury-encloses-the-c...
Hmmm, if memory serves, everyone has been bitching that ZIRP has been killing savers and only benefiting the big banks and stocks for the last 7 years. Now the fed finally begins to raise rates, and they are once again fucking over the little guy in favor of the big banks....which is it?
Both. And neither have anything to do with the little guy. Those are just consequences of the Fed doing what it was created to do: support the banks that own it.
I think I am going to visit the coin shop today instead. This is basically what I was told yesterday by my bank and quoted rate. I will risk on silver and gold and junk cars but not this crap.
This sucks.
http://www.bankrate.com/calculators/savings/bank-cd-calculator.aspx
Vintage bicycles. They cannot manipulate those.... Plus they have utility while they appreciate....
Remember. The "Son of Man" was sold for 30 pieces of silver. That's only about 14×30= 420$ USD. Cheap ! Wholesale ! Add 20 % usuary.
30 half-ounces
This presentation is out of date.
The taxpayer and Federal Reserve gave the big Wall Street banks the huge reserves deposited at the Fed. And as part of that arrangement, the Fed initiated a new policy of paying interest on these very reserves.
Now the Fed will make higher payments (higher interest rates) on the very money sucked out of the public's hands in the first place. It is this higher payment, not necessarily the old style monetary tool of sucking out monetary liquidity, that is the policy implementation tool.
Similar outcome though - the public is screwed.
The rate increase is for the interbank borrowing rate that might or might not change the rate paid on reserves held at the Fed. You seem to have the two mixed up. The interbank rate is the rate of interest charged on short-term loans between banks. Banks borrow and lend money in the interbank lending market in order to manage liquidity and satisfy regulations such as reserve requirements.
Private Bankers will bank privately.
Shut down DC, eliminate state governance, live with your neighbours locally. Viva America !
Rehumanize small-scale governance through decentralization, like the old days when you could make eye-contact with your elected representative.
In other words, End the FED.
The Fed is there solely to support banks and to provide funds to the government that it otherwise could not raise. It does exactly what it was created to do. If it was audited, it would pass the audit, which would indicate that the Federal Reserve is neither "federal", nor does it have any "reserve". It's a bunch of bankers controlling banks with the added benefit of being authorized to create money out of thin air by simply writing a check with nothing behind it. It's certainly not there for the benefit of the general public. Right now, the banks need a little goose in the form of higher spreads. The real estate market is flat, and all that inventory of foreclosed properties needs to be cleared out. They have been held off the market to avoid a total collapse in price. If you raise rates, just a tad (i.e. meaningless amount), the hope is that this will spur an increase in real estate activity as people try to get in before mortgage rates start to climb. They hope that will cause inflation and a reduction in supply, which will allow them to trickle in all the garbage they have been holding. A win-win...but only for banks. I'd be surprised if it works though. Contrary to publicly accepted propaganda, the economy still sucks and people are not as confident about their future as they were a decade ago.
I thought a rate hike would negatively impact $SPX and sold prior to FOMC meeting.
Looks like I was wrong, wrong, wrong = (
Statistically speaking, what PCR explains makes perfect sense. The FED stayed within the comfortable range of doing one thing: empowering the Big Banks even further. Better watch your small, local banks reactions.
well the looting by the 1% wins with ZIRP, With NIRP and with Epsilon+...
Cos as that legendary quote says : "When you go from nothing to 1 million it's an achievement. When you go from 100 million (read 10 billion today) to 110 million its inevitable."
In a Casino economy even moar so, as 85% of the money feeds the financial closed loop market; 15% the real economy. And with HFT you are the owner of the roulette wheel and 0 comes up very, very often !
The only way that will change is when we burn the casino, nationalise the FED (like all over the world), glass steagall banks, and regulate the banksters derivative plays with OUR money; not like today but like Liz Warren would!
which has the higher likelihood: Sanders - Warren or a Clinton - Warren ticket?
This is LOlz, the FED policy is working because:
– The heavily manipulated paper gold price is going down
– The heavily manipulated Libor (which banks decide themselves) is at a six year high
Day 1 After Fed Liftoff Shows Move Catapults Money Market Rates http://www.bloomberg.com/news/articles/2015-12-17/day-1-after-fed-liftoff-shows-move-catapults-money-market-rates
After the Federal Reserve raised its benchmark interest rate for the first time in almost a decade, the Day 1 follow-through in money markets shows the policy move looks to be working.
The overnight U.S. dollar London interbank-offered rate, known as Libor, fixed at the highest in more than six years Thursday.
What Benefits To Savers? Banks Rush To Hike Prime Rate To 3.50%, Forget To Increase Deposit Rate http://www.zerohedge.com/news/2015-12-16/what-benefits-savers-banks-rush...