by Charles Hugh Smith
Of Two Minds
Imagine the impact of the Fed’s new policy on the bottom 50% of American households, who currently own near-zero financial assets.
The Federal Reserve announced a new program today that offers every American household a $1 million loan from its new Household Discount Window at 2% interest. Before you start planning how to spend the $1 million, there’s one catch: the $1 million can only be used to buy US Treasury bonds, notes and bills.
As disappointing as this restriction might be, it has an upside: borrowing $1 million from the Fed’s discount window will cost $20,000 in interest annually, but with Treasury bonds, notes and bills paying around 4.5% or more in short-term durations, the $1 million will generate $45,000 in income annually–a $25,000 net profit for every household.