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Money Blog

Sep 18, 2012
10:31 AM

Federal Reserve Now Giving Away More Free Money

Last week, it was big news to economists when Ben Bernanke, chairman of the Federal Reserve, announced that the Fed (as it’s known in business circles) would be instituting a process it calls quantitative easing to help stimulate the economy.

Unless you’re an economist, you’re not likely to have a particularly strong opinion one way or another about quantitative easing, but the move is very important and actually not difficult to understand.

The short way to explain quantitative easing is to say the Fed is going to start printing money out of thin air and they’re going to give that money to banks.

The Fed has been giving $85 billion a month to banks, and they are now going to increase that number to $125 billion a month. This imaginary, interest-free money that the banks are given is supposed to boost the stock market and get banks lending again.

It’s basically the same thing as the stimulus passed in 2009, except that Congress and President Obama don’t have to agree to do it and (because it’s magical Fed money) we can’t ever run out of it. As the late, great rapper ODB once said, “Why would you not want some free money?”

To understand how and why the Fed gets to do this, it’s important to understand a few things about it. First, the job of the Fed is to determine the value of money. That seems like a strange concept, but that’s what the Fed does.

They determine the interest rate for banks to borrow money from them and that determines how much banks charge you. If the Fed is lending money at 5 percent interest, it’s a lot more expensive to borrow than it would be if The Fed were charging 1 percent interest. When interest rates are high banks lend less and money is worth more, conversely when interest rates are low banks should lend more.

Right now, money is very cheap. The Fed is charging right around 0 percent interest—again, “Why would you not want some free money?”—but banks are still slow to lend it to people seeking loans.

The banks are holding onto it because they make more money investing than they do lending. (There used to be a law that kept banks from doing that called the Glass-Steagall Act, but that went out the window in 1999.)

Given that the banks were already getting $85 billion a month, Chairman Bernanke must figure that adding another $40 billion a month indefinitely will be just what the doctor ordered.

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Sep 7, 2013 01:09 pm
 Posted by  sandovalgera

In times of great struggle and suppression the average American like me can barely support to maintain only myself and it's sad. And sometimes even though you want to start a family this economy makes it difficult. It's hard to get through the days in this life no matter how much you bust your ass at work. I worked all my life even busting my own two knees just so I can pay the bills we need in order to live in this great nation. But even as a great nation we c ourselves it's depressing to know that the average American has and still has sad face. Just like American politics try to get involved sending aid to all the poor countries in this world that can't support themselves, I think it would only be fair to help those American first who are in D struggle knowing we were raised with pride and honer ready to defend this country from any problem foreign or domestic. With that in mind I know you can get an idea of how hard times must be if a young Americans has to give those two things away just like that just to keep paying this bill if we want light. And as the federal reserve you shouldn't wait for that to happen if we are willingly going to sacrifice our lives if the day shall come. If anything the man who sacrifice his life for his country shouldn't be working at all he should be made sure they are fit and taken care of . Plus in media we can pretend to be that nation that spends 7 trillions of dollars in our military but it dose no good if behind doors we know we can't afford to stay unemployed. If Americans are going to make their hole lives slaves paying taxes to you bankers the least you can do is that we don't have to pay for our mortgage and food, you guys can keep the money. I think I deserve to get a little bit back for being a good American. If the United States reserve can have so many billions of dollars laying around just to give to those in need. If the cells that make me, you and this world are the same, I don't know how do we still suffer if we are all one in this universe.

Oct 31, 2013 07:40 am
 Posted by  Trixie1172

I need at least $7,000 to pay my rent and catch up on all bills. I work part time as many hours as I can. I just got out of a bad relationship of 6 years. He was physically and verbally abusive. I was the only one that worked and he took all my money and destroyed my credit. I need this money so I don't have to live on the streets, and to get my credit and my life back. Please help me get my life back to normal.

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