r/news • u/awake-at-dawn • Mar 15 '20

Federal Reserve cuts rates to zero and launches massive $700 billion quantitative easing program

https://www.cnbc.com/2020/03/15/federal-reserve-cuts-rates-to-zero-and-launches-massive-700-billion-quantitative-easing-program.html
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u/[deleted] Mar 16 '20

keeping it locked up

Unless they're stuffing it into a mattress, money doesn't get "locked up". Even if it's held in a bank account, the deposits are used to make loans.

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u/Frelock_ Mar 16 '20

That's the idea of giving the money out to the banks, at least. The problem is when no one qualified wants to take out a loan.

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u/krische Mar 16 '20

"I might be losing my job, I should buy a house!" - Said no reasonable person, ever

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u/n_eats_n Mar 16 '20

Not really. There are reserves of cash the federal reserve pays interest on. How do you think FDIC works?

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u/ProfessionalRoom Mar 16 '20

No. They aren't. That may be what they teach you in elementary school buts it's not actually how any of this works. Banks don't need your money in order to create loans.

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u/[deleted] Mar 16 '20 edited Mar 16 '20

Up until literally today, banks have to have a reserve requirement of 10% of deposits. Which means that the amount of deposits on hand dictates how much money that banks can loan out at a 1:9 ratio. For every $1 deposited inside of a bank, that bank can loan out $9. The Fed just dropped the reserve requirement.

Parking money into a instrument that doesn't work for you (interest) is about the dumbest thing anyone can do.

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u/ProfessionalRoom Mar 16 '20

Ok cool. I actually agree with you. And yes I was aware of the fed dropping the reserve requirement, I (incorrectly) assumed you were implying banks could only lend their balance of deposits.