Federal Reserve chairman Ben Bernanke told Congress today that he is open to taking additional actions to keep the so-called recovery going. The article is here:
The article says that while there are no leading options, some of the options could include "lowering the rate the Fed pays banks to keep money parked at the Fed, strengthening the pledge to hold rates at record lows and reviving some crisis-era programs".
The first option in particular is fascinating. The Fed funds rate is already near zero. Technically, it is set at between 0% and .25%. So the Fed is paying interest to banks for their excess reserves of around one-tenth of one percent. How can they lower it? The only option, except for some insignificant lowering, is to charge banks a fee to keep their money on reserve. If the Fed charges a high enough fee, then ultimately banks will essentially be forced to lend out their excess reserves.
The monetary base has more than doubled since the fall of 2008. This has been offset by the banks increasing their reserves. If the banks lend out all of the money that has been created since then, then we will eventually see severe price inflation. It could easily double or more in a relatively short period of time. That is why it is unlikely that Bernanke will go for this option. If he does, then he truly deserves to be called "Helicopter Ben" and he truly is an idiot.