Fed to test new tool for Banks to Operate As Economy To Themself At Detriment to Business

The Fed announced three auctions of short-term deposits and said two more could follow. The auctions will offer around 8,000 banks around the country a chance to park reserves at the Fed and earn interest, effectively taking those funds out of general circulation in the economy.

The proper way for the Federal Reserve to make sure there has not been too much stimulous is to increase Bank Reserve Requirements which limits the amount of money that banks may loan out. This also makes the banks more stable. For the Fed to auction short-term deposits in competition to the Treasury while also making it more difficult for the Government to deal with debt issues by pulling taxable wealth out of the economy raises very serious questions.

The first auction will be for $1 billion of 14-day deposits on June 14. Auctions of 28-day and 84-day deposits will follow for amounts yet to be announced.

The Federal Reserve is doing this while the United States has an unemployment rate of 10% to 30% depending on how you want to figure it. The Federal Reserve is doing this while there is already signs of a liquidity crisis building in the World Economy. The Federal Reserve is doing this while there is little sign of non-commodity inflation in the economy. The Federal Reserve is doing this while banks continue to fail.

Article:
http://www.reuters.com/article/idUSTRE64R46V20100528