How Much Free Taxpayer Money is the Fed Giving to Banks?

December 8, 2022

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10:20 pm

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68 comments

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Economics

*Reserve balances, reverse repos, and interest rate paid to banks from St. Louis Fed, chart by Mish.*

Chart Notes

Data reflects end of month numbers. The latest reserve balance is from the New York Fed. The rest of the numbers are via a St. Louis Fed download.
Note the stairstep pattern on interest paid on reserves. The interest rate rises every time the Fed hike rates.
Due to Quantitative Tightening (QT), reserve balances at the Fed have slowing been declining every month.

With these numbers in hand, we can calculate the free money the Fed gives to banks.

Free Money to Banks Annualized Calculation

Two forces are in play. A reduction in reserves lowers the free money. Rate hikes by the Fed increase the amount of free money.

QT takes away about $95 billion a month from the total amount the Fed pays interest on.

Next week the Fed will hike 50 basis points to a range of 4.25 percent to 4.50 percent. I expect the new interest rate will stairstep to 4.40 percent (3.90 + 0.50).

Year-to-Date Free Money Given to Banks

We can calculate free money paid to banks by taking 1/12th of the annual rate for each month this year and summing the amounts.

Through November, I estimate about $84.7 billion has been handed out to banks. That is a bit on the high side due the net impact of mid-month hikes and QT (one adds, the other subtracts).

Hooray for Banks

If we factor in an expected interest payment 4.40 percent on about $5 trillion (reserve balances plus reverse repos), we can estimate the December free money will be approximately $22 billion.

For the full calendar year, figure that about $100 billion in “free” taxpayer money will be given to banks this year.

Because rate hikes outweigh QT and because we are starting the year at a much higher interest rate, figure free money too banks will we far greater than $100 billion in 2023.

The current annual rate calculation is $206 billion and rising, not counting expected hikes in December and in 2023. Free handouts may come close or even exceed $200 billion.

And no one in Congress is complaining.

This post originated at MishTalk.Com.

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Counter

3 years ago

Where’s the QT?

amigator

3 years ago

We really need to come up with another word other thanTaxpayer. This infers that we are paying Taxes to cover spending when it has not been that way for many years. If we actually had to pay taxes to closely match spending then elections would become much more important. We would have much more meaningful conversations over issues rather than be duped into the discussions over issues which really are not that important in running an effective government.

BlauGloriole

3 years ago

To add insult to injury, John Hussman has repeatedly published convincing historical analysis that even very aggressive QT would have no effect on short term rates.

Sunriver

3 years ago

Certainly, this is all ‘Big Oils’ fault.

I went down to Wells Fargo today and asked for a million-dollar loan at a negative 4.5% interest rate.

I really don’t want to work for money anymore. Just like the banks. Heck, who want to work anymore? It’s the 21st century and all!

Zardoz

3 years ago

Reply to Sunriver

You’d just be stealing work from somebody that wants it. Follow your dream!

Salmo Trutta

3 years ago

People don’t realize how powerful the American Bankers Association is. Milton Friedman said required reserves were a tax. Paul Volcker said all reserves were a tax. So, who are the economists working for?

Do not be duped. The ABA paid economists to eliminate Reg. Q ceilings. The bankers now pay for the deposits that they already own. TBTF? How sweet?

RonJ

3 years ago

Reply to Salmo Trutta

I know our congressional representatives are not working for us. I have yet to come across any common person clamoring for a central bank digital currency or bank bailouts. Both Senators running for President in 2008, wanted bailouts. We know who they were working for.

Billy

3 years ago

Reply to RonJ

The larger any government grows the less they represent the common person.

Zardoz

3 years ago

Reply to Billy

The more a population grows, the less any one person matters. Government is herd management.

Captain Ahab

3 years ago

Reply to Zardoz

Which would make adherence to the Constitution crucial.

Avery

3 years ago

High School U.S. History final exam question. Here are your blue books, but half of the first page may be sufficient.

For what issue(s) was the President Andrew Jackson administration mostly known?

Sunriver

3 years ago

Reply to Avery

True Answer: Like Trump, Andrew Jackson wasn’t ‘one of the ‘them’.

However, the blue book would say Indian Wars what Andrew Jackson was known for.

Lisa_Hooker

3 years ago

Reply to Avery

1) Jackson refused to renew the charter of the Second Bank of the United States (the Fed of its time) forcing it into eventual liquidation.

2) Jackson paid off all interest bearing Federal loans, clearing the US national debt for the first and only time.

vanderlyn

3 years ago

Reply to Lisa_Hooker

did not see your replies. yes. you get it.

vanderlyn

3 years ago

Reply to Avery

ANTI CENTRAL BANK. shut it down, too.

vanderlyn

3 years ago

Reply to Avery

jackson also stopped the civil war decades before it eventually happened. as he was born on frontier of SC and NC he knew them well. as tariffs and slavery issue was building steam, he threatened SC if they dare secede. they were rightfully scared of him. jackson was captured as a boy, fighting in violent revolution against the occupying police state of redcoats. on my pal’s plantation outside of charleston. tortured with his brother by the redcoats, too. i believe he bore the scar of a sword on his face for rest of his life.

RonJ

3 years ago

“Next week the Fed will hike 50 basis points to a range of 4.25 percent
to 4.50 percent. I expect the new interest rate will stairstep to 4.40
percent (3.90 + 0.50).”

These rate hikes are happening so fast and furious, that i keep losing track of the current rate.

KidHorn

3 years ago

I don’t get how QT lowers interest paid. QT reduces FED holding of T-bills and MBS. Not deposits. Seems all QT would do is lower interest paid to the FED. Not interest paid by the FED.

vanderlyn

3 years ago

Reply to KidHorn

QT is mostly bonds running off b/s of fed. maturing and principal paid. but i’m sure there are other scams. of course it’s just high tech 21st century of the ancient art of kings clipping the coins to debauch the currency circulating and owed the peasants. i know my 100 USD federal reserve note (IOU), i hold in my wallet, buys me less and less (each decade) food clothing and shelter. and perhaps occasional sex drugs and rock and roll.

Zardoz

3 years ago

Reply to vanderlyn

Drugs are actually quite affordable these days, as is streaming rock n roll. Sex is free if you marry a woman with a good career.

RonJ

3 years ago

Reply to Zardoz

Remdesivir costs some $3,000 (not including administration, which requires a hospital stay). Paxlovid is at least $500, though it is your tax dollars paying for them. Not cheap, like Ivermectin.

Zardoz

3 years ago

Reply to RonJ

Haldol still out of reach for you? Maybe you should try the generic.

Toot toot!

RonJ

3 years ago

Reply to Zardoz

Toot toot, you can’t refute. Just look up the prices.

Lisa_Hooker

3 years ago

Reply to Zardoz

Sex has never been free.

Read Aristophanes’ play Lysistrata.

vanderlyn

3 years ago

Reply to Zardoz

try ticket prices. like kind.

Billy

3 years ago

Reply to vanderlyn

Don’t forget that when the purchasing power of your currency depreciates(I call it inflation) it’s actually a double tax because:

#1 The money created is now under the government’s control.

#2 They don’t adjust the tax brackets equal to the rate of money creation.

Misc

3 years ago

Under Obama, the government had a great gimmick. It gave the banks free money but then levied huge fines on the banks. Thus, the Federal deficit showed a smaller amount that it would have without the gimmick.

It has been a while since the government levied large fines against the Banksters. I expect a large amount of this “free” money interest by the Fed to be returned to the Treasury in upcoming fines. Thus, the peasants will say, “Look at how big of a fine Bank XYZ was charged”.

FromBrussels2

3 years ago

The FED and other CBs for that matter are worthless, superfluous institutes disrupting healthy economic cycles eventually destroying the financial system whether intended or not ….Money creation out of the blue has already passed its limits , rampant inflation is now trapped in a vicious circle ……Hey but let s bring interest rates down again and everything will be hunky dory again , won t it ? FN MORONS !

Zardoz

3 years ago

Reply to FromBrussels2

Here, have some attention, angry, irrelevant little person.

FromBrussels2

3 years ago

Reply to Zardoz

Hi there papa dave the oil pundit ! Howdee ? Any recommendations ?

Zardoz

3 years ago

Reply to FromBrussels2

Meditation might help.

Captain Ahab

3 years ago

Reply to FromBrussels2

Someone who gets the danger. The Fed has lost control and we are locked in. This may be the most unpredictable era in 100 years.

JeffD

3 years ago

Yet T-bill holders are paid 3.65% for four weeks, 28 times the duration of overnight. The Federal Reserve’s job is to enrich the banks and screw the people.

KidHorn

3 years ago

Reply to JeffD

Part of the FEDs job is to make sure the banking system doesn’t go under. I don’t think they pretend otherwise.

StukiMoi

3 years ago

Reply to KidHorn

But what they do pretend; or more likely are simply flat out stupid and illiterate enough to actually believe; is that the “banking system” “going under” would be some sort of negative thing.

Instead of what it truly is: The equivalent of finally being rid of a malevolent tumor doing nothing whatsoever aside from killing the host.

Not one single one of neither the entities being handed all these billions (which are a drop in the bucket compared to the rest of the pathways they are bing handed wealth stolen from others…); nor the illiterate yahoos who make up all of said entities; serve any useful purpose. There would be no, literally no, loss experienced from absolutely every single one of them disappearing from the face of the earth 50 years ago. Pure and utter waste, is all that any of them have ever been and will ever be.

No interesting insight has been contributed by any of them. No improvement to any allocation of any resource. Ever. No anything of value. Instead; all that every single one of them have ever done, is serve as recipient of 100%, pure loot. Loot which, by necessity, must ultimately have been stolen from someone who did have to do something of value to create it. And whose costs are now, as a result of keeping this gaggle of undifferentiated garbage flush and mighty, so high they can no longer compete; even against five year planning commies.

Americans, and America, as a whole; would have been much, much, better off; if the the entire gaggle of worthless riffraff were simply bulldozed into the Hudson and forgotten about as of tonight. Since not a single one of them, neither have nor ever will, contribute nearly as much of value as they would do by serving as simple fishfeed.

JeffD

3 years ago

Reply to StukiMoi

Technically, they provide a conduit for other people to loot. Loan recipients are also looters, whether they are using a credit card, buying a home, or building commercial real estate.

MPO45

3 years ago

I’d love to see an analysis on how much “free money” boomers are getting in the form of social security and medicare. I hear the number could be in the trillions.

worleyeoe

3 years ago

Reply to MPO45

What does that mean? People pay into those programs. Are you trying to say there’s corruption?

These banks are literally getting free money both as QE and interest paid on that free money.

It’s sickening that there’s not require accountability for a significant portion of this free money to be paid to depositors as dividends.

That money will balloon executive pay & bonuses at all of these major banks.

MPO45

3 years ago

Reply to worleyeoe

People pay into those programs

The average hip/heart/dialysis/etc treatment for an elderly person will run into the $200,000+ range and up. You think people paid $200,000 into these programs? That’s just medicare surgical treatments, that doesn’t include pharmaceuticals, care or other expenses.

Almost a trillion dollars is being spent on 70 million people and the problem is growing worse not better.

https://www.medicarefaq.com/faqs/overview-of-medicare-spending/

People may “pay into those programs” but they are getting far more out than they put in at taxpayer expense.

RonJ

3 years ago

Reply to MPO45

Denninger keeps saying that enforcing anti-trust law could cut medical costs up to 80%. Musk cut half the staff at Twitter and Denninger noted it is still operational. He has also noted the the percentage of hospital medical personnel vs administration- the people who don’t actually treat anybody. Growth in admin has outrun that of doctors. What are some of these additional admin salaries? The patient pays for that, too, boomer or not. Maybe a couple of months ago, it was claimed that the average Covid hospital bill was running some $400,000. The claim was that Remdesivir was supposed to cut a hospital stay by 1/3. At $400K, it doesn’t seem that Rem cut the average hospital stay.

Zardoz

3 years ago

Reply to RonJ

Toot toot!

RonJ

3 years ago

Reply to Zardoz

Fact, fact.

The Oklahoma Surgical Center charges a lot less for surgery, than a typical hospital.

Look at a chart of hospital administration growth vs doctor growth. While not at the same rate, it is like one of those debt vs GDP growth rate charts.

RonJ

3 years ago

Reply to RonJ

More fact, fact. Remdesivir is of no benefit to the hospital patient. The patient is suffering from lung inflammation, inhibiting the intake of oxygen. A measly 6mg of Dexamethasone is inflammation standard of care for Covid.

Dr. Kory: “the standard of care dose [is] 6 milligrams of dexamethasone, which is too low, [and] methylprednisone is far superior in its effects on the lung. … “It’s well-known that in fulminant cases, like whited-out lungs on a ventilator, you needed … 1,000 milligrams of methylprednisone for three days in a row. Six milligrams of Dex is equivalent to about 32 milligrams of methylprednisone.”

In other words, Covid patients are seriously under dosed for inflammation treatment, Zardoz. Instead of recovery, it leads too often to mechanical ventilation, followed by death.

Toot toot, but you can’t refute.

MPO45

3 years ago

Reply to RonJ

Musk said Twitter may file for bankruptcy so don’t go applauding the cut in labor yet. The point I was making is that $1 trillion plus is being spent on people on the way to the graveyard, not really contributing anything but leeching the system, when that money is better spent on next generation of doctors, engineers, and other contributors to society or alternatively, infrastructure across the country to replace 100 year old pipes, bridges, and dams.

Zardoz

3 years ago

Reply to MPO45

… so those of us at the end of the line get to pay in, but we never get paid back.

It was a poorly designed system from the beginning. Congresscritters simply can’t grasp the math required to make something like this sustainable.

RonJ

3 years ago

Reply to Zardoz

They know what the math is, but it is a third rail, the one that kills a political career, if they touch it.

Lisa_Hooker

3 years ago

Reply to Zardoz

There is no math that will make a Ponzi scheme sustainable.

worleyeoe

3 years ago

Reply to MPO45

BS! Every generation is the exactly the same. The first SS recipient paid something like $24 into the system and got about $21K in benefits.

And, you’re point is apples to oranges. Everyone knows that SS & Medicare pay out more than they take in, so stop blaming the baby boomers, which I’m not one of, just because they’re the generation that’s going to cause everything to go tits up. The exact opposite can be said for people like me with regards to healthcare, homeowners & car insurance. I’ve paid tons more monies into these forms of insurance than I’ve gotten back.

The people who work in healthcare making egregious fees, pharma companies, lawyers, et al are just as much or more to blame. Tell all those people to take a big pay cut. Tell the lawyers that we’re pushing through tort reform that will severely limit payouts, and then maybe we can talk about who to blame.

We could make the same comparisons for people who live along the gulf coast. While their flood insurance is certainly expensive, they couldn’t afford it if people like myself didn’t pay WAY more than I should have to having never filed a claim and live hundreds of miles from the coast.

Last, I just read an article that compares our SS system to countries like UK, Australia, & Canada. The high earners in those countries make a fraction of what someone in the US does.

What’s also needed in healthcare is for people premiums to pay based on their overall health and by per person. What should a family with one kid pay the same as another family with 5 kids? It makes zero sense.

The baby boomer blame is a scape goat. Total, BS! So we all agree it’s a poorly designed system over all, and at some point not too far down the road, it’s all going to go boom!

StukiMoi

3 years ago

Reply to MPO45

“I’d love to see an analysis on how much “free money” boomers are getting in the form of social security and medicare.”

Plenty less that they have been, and are being, handed from pure looting of their productive betters; both in the form of 1) debasement driven “asset appreciation”; and 2) forced transfers by way of junta enforced way-way-way-way-way above market rents.

Those have been far and away the biggest redistribution rackets for decades already. To the point where nominal “taxes,” “social services” and the like, hardly even register anymore.

Which is why “the rich” largely live in “high tax” New York and California. While “the poor” live in love tax locales: Because nominal taxes and levies are hardly even roundoff, compared to the massive wealth redistribution done via money/credit channels. For more confirmation of which wealth redistribution mechanism matters the most: Compare the wealth and income of the average social services recipient, to that of the average hedge fund manager. Neither of whom live off anything other than government enforced welfare; redistributed from more productive people.

8dots

3 years ago

The winners are the banks. That’s why Jamie so gloomy.

vanderlyn

3 years ago

the federal reserve is about as federal as federal express. the middlebrows still haven’t caught on that OUR SUPPOSED government outsourced the money creation and protecting to private owners of the NYFED. if a man hasn’t figured out the scam the past few decades, it ain’t ever happening. all the arrogant and quite ignorant folks think the FED is dumb. that in itself is as dumb as dumb.

HippyDippy

3 years ago

How unsurprising. The FED, being a government creation, is only good at wrecking economies. It follows common statist logic. We need to have the FED wrecking our money supply because if we don’t have the FED ruining our money supply someone will ruin our money supply. Knowing this makes all this thievery a foregone conclusion.

Captain Ahab

3 years ago

Meanwhile, Biden bails out the Teamster’s. LMAO

shamrock

3 years ago

Don’t the banks lose the opportunity cost of not having that money somewhere else? Like a 6 month treasury is paying 4.8%.

KidHorn

3 years ago

Reply to shamrock

The banks buy a lot of treasuries. Primary dealers often have no choice.

ColoradoAccountant

3 years ago

Who thinks that the next monetary system will be backed by commodities?

Billy

3 years ago

Reply to ColoradoAccountant

That’s theory of the Axis of Gold. All of the BRICS nations who don’t want to give their power up to Nato countries are all joining and will be backing it by gold.

That’s why I think the legacy media is blaming the whole war on Putin and pretending Xi is really bad because he’s being so hard on the citizens. You know, the same thing we were just praising Australia for doing.

vanderlyn

3 years ago

Reply to Billy

great points Billy

KidHorn

3 years ago

Reply to ColoradoAccountant

Likely backed by something. Gold makes the most sense since it’s consumed very little. So it has a stable supply. Other commodities can run out.

Zardoz

3 years ago

Reply to ColoradoAccountant

If there’s a next monetary system, it’ll be backed by .308 and .45 shells.

Lisa_Hooker

3 years ago

Reply to Zardoz

7.62mm & 9mm. Common and cheap military cartridges.

5.56mm is just an over-sexed .22.

RonJ

3 years ago

Reply to ColoradoAccountant

When asked why the FED maintains gold reserves, Bernanke replied, “tradition.” Obviously, tradition is not the reason the FED maintains gold reserves.

Everything moves in cycles. What happens after a major cycle financial collapse? Things start over again. If a monetary system backed by gold will be a reassurance to the public, of a stable monetary system, going forward, the powers that be will grab the opportunity to quiet a restless public, at the time.

Avery

3 years ago

No prob. The Fed has a high ESG score so creating electronic digits is infinite. So apparently is anyone else who has to pay for it by taxes and/or eroding purchasing power of their money.

Stealth REPO bailout has been going on since 3Q/4Q 2019.

PreCambrian

3 years ago

Nice job if you can get it. Accepting free money and then getting free interest. Do they have to pay taxes on it?

PapaDave

3 years ago

Reply to PreCambrian

I was going to ask about taxes as well.

vanderlyn

3 years ago

Reply to PapaDave

taxes are for the little people. a r/e tigress by the name of leona helmsley explained that long ago.

MarkraD

3 years ago

Reply to PreCambrian

A single digit “job creating” income tax for bank C-suites.

shamrock

3 years ago

Reply to PreCambrian

It was free money when FED funds rate was 0, but now it’s 3.75 and going up.

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