brian Wesbury
Economist Brian Wesbury
Economist Brian Wesbury comments on how the Federal Reserve (and eventually taxpayers) are paying hundreds of billions of dollars in interest to private banks to hold money printed during massive balance sheet expansions following the 2008 crisis and COVID.

"Right now, we're paying banks 4.5% on over $5 trillion. We're paying private banks $200 billion a year to hold all this cash that the Fed printed," he said during an appearance Tuesday on Steve Bannon's War Room.
DAVE BRAT: Brian Wesbury, a friend and just a great monetary authority for our country. And this will save us potentially $1 trillion in the budget over 10 years. So Senator Ron John and House guys, here you go. Brian, take it away.

BRIAN WESBURY: You know, we could talk about this for hours and still be a little bit confused. The Fed loves us confused. But the simple story is that back in 2008, the Fed used that subprime housing crisis to grow its balance sheet massively.

I've tried to figure out ways to say this. They went from a $700 billion balance sheet to an $8 trillion balance sheet. Another way to say it is that the Fed — if you look at the bank size — it was 5% of GDP. Today —

STEVE BANNON: Hang on, hang on, hang on. Whoa, whoa, whoa, whoa. Slow down. The balance sheet of the Federal Reserve on the day they walked into the Oval Office with Bush was $880 billion. I thought the max — because you're gonna make my head blow up here — I thought the max they got to was $4.5 trillion when we took over in January 20th of 2017, Inauguration Day, it was $4.5 trillion. Are you telling me they ran it up to $8 [trillion] and they did quantitative tightening to take it down? Or did they have other pockets? They're hiding the cash, sir?

BRIAN WESBURY: Oh no, they did it again. So when Paulson and Bernanke walked into W's office — the Oval Office — in 2008, they printed $4.5 trillion. That's what they did after that -- during the subprime crisis.

Then they used that strategy all over again during COVID, and they did another $4.5 trillion. And I always compare it to 2007.

STEVE BANNON: After President Trump took $1 trillion off when Yellen was Fed chair in 2019, and this is what President Trump's growth in 2019, over 3%, was against, the headwind of shrinking the balance sheet... $1 trillion. Then you're saying they added it back in?

BRIAN WESBURY: They did it all over again.

So if you think about it, what quantitative easing is, so we just described the size, it's massive. They increased the size of the Fed's balance sheet. The peak was over 10 times bigger.

In fact, if you take the Fed's balance sheet today, it's bigger than the top 10 sovereign wealth funds in the world combined. The Fed is by far the 1,000-pound gorilla in the room.

And how, if you buy all these bonds and you print all of this money, how do you keep it from turning into inflation?

Now, we know it happened once. But how did they stop it under Bernanke from turning into inflation?

Well, what they did is they went in and did three things:
  • They put massive new liquidity rules on banks. They said: "You have to hold this money we printed. Don't lend it out. Don't let it create inflation."
  • They raised capital requirements on banks to do the same thing.
  • The final thing — and this is what Dave was just talking about — they decided to pay banks to hold the money that they printed.
So right now, we're paying banks 4.5% on over $5 trillion. We're paying private banks $200 billion a year to hold all this cash that the Fed printed. Because if they didn't pay them, it would turn into hyperinflation.

So now we've created an absolute mess. The Fed's paying banks $200 billion. They only earn about $100 billion on their bond portfolio, which means they're losing $100 billion a year.

STEVE BANNON: And who pays for that?

BRIAN WESBURY: The taxpayer. And this is why — if we stop this whole process and roll back the clock to 2007 — we could potentially save $2 trillion over the next 10 years.