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Your World Drowning in Easy Money

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You know something’s amiss when the Fed pumps $85 billion a month into the system. The Fed’s balance sheet has ballooned to $3.85 trillion. What’s missed by the media is that 60% of the Fed’s balance sheet is excess reserves or $2.3 trillion—money that banks keep on deposit at the Fed. Banks currently earn 0.25% from the Fed, which is actually paid by you and me the taxpayer. This is simply a ripple now, but wait until interest rates go up. The cost to taxpayers could be catastrophic. “A return to even a normal 2% rate on excess reserves of $2.3 trillion would cost U.S. taxpayers $46 billion. As former New York Fed legal officer Walker Todd—who authored a May paper titled ‘The Problem of Excess Reserves, Then and Now’—pointed out to me this week, if we hit a period similar to 1994-1995 when the Fed funds rate increased by 3.25 percentage points over one year, the cost of containing $2.3 trillion in excess reserves would reach $80 billion annually,” writes Mary Anastasia O’Grady of The Wall Street Journal.

Take a look here at the skyrocketing quantity of total reserves, made up mostly of excess reserves.

total reserves

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E.J. Smith - Your Survival Guy

Preparing your investments and family for when disaster strikes.
E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.