The Financial System is Now Totally Dependent on Government Intervention

by Peter G. Klein

In an emergency meeting yesterday, the Fed announced a new set of measures designed to combat the negative supply and demand shocks anticipated from COVID-19. The target for the benchmark federal funds rate (the rate at which commercial banks lend to each other) was cut to 0–0.25 percent and the discount window (the interest rate at which the Fed loans money—or, I should say, “money”—to commercial banks) was slashed to 0.25 percent. Simultaneously, the Fed announced an additional $700 billion of so-called quantitative easing (QE) and reduced the reserve requirement—the percentage of outstanding loans that a fractional reserve bank must hold in federally guaranteed deposits—to zero for the first time in US history.

What are the main takeaways from an Austrian perspective?

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