Saturday, March 06, 2010

Alice in Wonderland economics

Via Mike Shedlock we learn of another example of the craziness of today’s financial world. The Nevada Federal Credit Union is paying its customers to withdraw their money. Yes, their message is: Please take your business elsewhere, we don’t want it. Why? Because it is costing them to hold money. They cannot find any worthwhile loan opportunities (it is Nevada, after all) and they can't engage in the high risk investing/gambling that the big boys on Wall Street can. They are paying more in required deposit insurance (.4%) than they can earn with short term Treasuries (.25%).

Here is a simple example of how artificial is the Fed’s current policy of holding interest rates at nearly zero--in other words, more smoke and mirrors. Economists and financial bloggers like Shedlock have been saying for a couple years now that most government interventions to right our economic ship are counterproductive. Their goal is to restart the country’s economic engine but do nothing to fix its problems. When your car needs a tune-up, if not an overhaul, pouring additives in the tank may get you a few more blocks or miles, but you’re still going to end up on the side of the road with the hood up.

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