Straight from the Fed mouth, via Mish:
In the post-crisis environment of abundant reserve balances, most fed funds borrowing transactions are motivated by “IOER arbitrage”—borrowing overnight at a rate below the IOER rate, leaving the funds at the Federal Reserve overnight to earn the IOER rate, and earning a positive spread on the transaction. Foreign banking organizations (FBOs) currently have a large presence in the fed funds market because of their borrowing advantage over domestic banking institutions*. Since FBOs do not offer retail deposits, they are exempt from paying Federal Deposit Insurance Corporation (FDIC) insurance assessments, which all domestic banks must pay*.
The Fed inserts arbitrage, on purpose, and it is mandated by law in both the primary dealer system and in the twin directives.
Our macro economists with their hydraulic macro have completely fouled central banking theory. Their is nothing hydraulic about currency banking because currency banking is all about quantization, finding the appropriate ‘chunks’ which minimize transaction costs, the Baumol process, I have named it. In theory it is all about congestion management, price is a secondary proxy. This description of excess reserves is mostly a match to what Arnold Kliong says in general terms.
So, our central banking is mostly about legally requiring the rich to get richer on the backs of taxpayers. Fools who believe in hydraulic macro do not belong in policy circles.
Por lo tanto, nuestra banca central se trata principalmente de exigir legalmente que los ricos se enriquezcan a costa de los contribuyentes. Los tontos que creen en la macro hidráulica no pertenecen a los círculos políticos.
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