JULY 2025 – The American reading public – a decided subset of the American public – doesn’t exactly devour the work of economists and business journalists these days. But among the voices in finance there are bright spots, and one of them is the WSJ’s staff op-ed writer Joseph Sternberg. A recent Sternberg column highlights some important and little-reported matters: 1) The Federal Reserve, through a relatively new policy, boosts the profits of the nation’s largest banks by paying interest on the bank’s reserve deposits to the central bank, and 2) politicians, even veteran politicians like Ted Cruz, don’t have a great grasp of that policy.
Sternberg cited recent comments by Cruz to point out that, if the Fed’s interest payments on bank deposits with the Fed were terminated, the government would save $100 billion annually. The policy was intended as a short-term stimulus for economic weakness. Since the policy was enacted in 2006, it’s become a major driver of big-bank profits – as Sternberg writes, “this wasn’t a modest policy tweak.”
It’s at the core of the way the Fed operates now. For long periods after 2008 the interest rate paid on reserves had a greater effect on the financial system than the overnight fed-funds rate that the Federal Open Market Committee sets with great fanfare at each policy meeting, because the rate paid on reserves directly influenced banks’ decisions.
Such reports are important reminder that Washington uses the central bank activities to conceal the degree of borrowing and money-printing going on – and has for many years. And it has the first-tier banks – Wells Fargo, Chase, Bank of America, for starters – as co-conspirators in that process now as well.
https://www.wsj.com/opinion/ted-cruz-stumbles-on-a-source-of-monetary-madness-b182a59c