Federal Reserve policies hurt the poor

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If you really care about economic justice, you should be aware of one of the worst (and least discussed) corporate welfare schemes in history. Below is a simple outline of the modern-day process:

1. The Federal Reserve prints money.

2. The Federal Reserve loans out this money to the biggest banks well below all consumer interest rates (currently at 0 percent).

3. Savings rates drop. (Banks don't want to pay your for your money when they can get money at 0 percent interest from the Fed.)

The banks invest this money however they see fit. In a practically risk-free scenario, they invest the money in treasury bonds (a loan to the government), which currently pay slightly more than 3 percent per year.

At this point, the money is injected into the economy. Since the supply of money has risen, inflation occurs.

The effects in order of most obvious to least obvious: Consumer savings incentives disappear (see No. 3). The banks enjoy interest rates far better than consumers would ever find in the market (see No. 2). Most important, big banks pay back the 0 percent interest loan and keep the full interest they earned from that money. Imagine getting a no-interest trillion dollar loan for one year. You can invest that money practically risk-free for 3 percent and return the principle. You just made $30 billion with next to no effort.

The resulting inflation hits the poor and middle class harder than big banks, because the big banks received a larger share of the new money.

The Federal Reserve's power to print and loan out money to whomever it wants is corporate welfare. As a result of this power, the poor become poorer and the rich become richer. The effects are no different from taxing poor people and giving the revenue to rich people.

The issue has been championed by Ron Paul, but it has been supported by many notable progressives including Ralph Nader, Dennis Kucinich and Cynthia McKinney. Only the most corrupt and selfish people can stand behind this kind of corporate welfare.




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