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A Possible Explanation on Tarps Failure to Bring Liquidity

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H/T to Blacklisted News for this one.

Reuters has an article which indicates one of the reasons why TARP failed to stimulate lending is the fact that since last October the Fed has been offering interest on banking reserves. Unfortunately the article then goes on to indicate that this large reserve will translate into massive inflation when the economy picks up unless the Fed will raise the interest rates it is paying the banks to keep the reserve.

This seems like a bad policy in general since the Fed has as part of its mission to curb inflation and this will lead to chasing reserves with increasing interest rates.