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URL:  http://boards.fool.com/do-you-honestly-believe-that-85-billion-a-month-30750357.aspx

Subject:  Re: UK, NL, AUS ban mutual fund commissions Date:  6/26/2013  10:58 AM
Author:  aj485 Number:  72518 of 76075

Do you honestly believe that $85 billion a month is being lent $10 million at a time for a few days only?

No, because the Fed is not 'lending' $85B/month at 0.25% through the discount window. You are talking about 2 completely different functions of the Fed.

The $85B/month is being used to purchase bonds, which are based on loans made to consumers at a rate higher than the bond rate. That's how banks have always made their money - borrowing at a lower rate than they lend out at, although with rates being kept this low by the Fed, the differential is actually smaller than it has generally been historically, as you can see in this FRED data: http://research.stlouisfed.org/fred2/series/USNIM If you look at the timeframe since 2008, on average, the differential is significantly lower than the average differential was prior to 2008.

Then how did the Fed's balance sheet balloon to over $3. trillion? Under your scenario of an average of $10M per copy the balance should be in the low billions, not low trillions, no?

Because the Fed lent money out by buying bonds, not because they lent money out using the discount window.

At the time of filming, the Fed was still apparently fighting having to disclose to the US citizens what and how it was obligating them, so the clip is short on the hardest of data that I'd like to see, but gives an approximation by the PBS tally that is quite a bit bigger than the $700 Billion number.

Well, the disclosures were eventually made, and I think this website contains the data that you are looking for about what happened during the financial crisis. http://www.federalreserve.gov/newsevents/reform_transaction....

However, the guarantees and lending that you are talking about were not through the discount window (which is where some, but not all, banks can borrow at 0.25%) but through specific loans/instruments that carried interest rates significantly higher than 0.25%. The money the banks borrowed by issuing TARP trust preferreds to the Fed, for instance, started out with at a 5% rate, with an increase to 9% 5 years after the issuance of the trust preferreds, so those banks that have not paid back their trust preferreds that were issued in 2008 are going to see a significant increase in their interest expense later this year.

AJ
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