Letter: Banks pay low interest because Federal Reserve provides plenty of cheap money

February 27, 2013 

James and Betty Lou Wallace recently wrote a letter to the editor about interest rates. Perhaps the cause of the low interest rates needs to be clarified as to who is responsible and why.

First, interest rates represent the demand for money. When the demand to borrow exceeds supply, the rate goes up. But under our current system, the Federal Reserve is printing money and making it available to member banks at extremely low interest rates.

Why should banks borrow from citizens at a decent rate when they can get money from the Federal Reserve for next to nothing?

The reason the Federal Reserve is pursuing this policy is to keep interest rates low for the $16.4 trillion national debt.

If the interest rate government pays on the debt goes back to normal rates, it will bankrupt the federal budget.

And given the plan to send the national debt to $22 trillion at the end of the next presidential term, don't expect interest rates to go up any time soon.

And remember citizens, none of the money that the Federal Reserve loans to its member banks is real. It is all created on a computer and placed on the Federal Reserves balance sheet. Each time they create a dollar, your dollar is worth less.

JERRY CZEBOTAR, Pasco

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