[T]he Federal Reserve System has recapitalized major U.S. banks by paying interest on bank reserves and by keeping an unusually high interest rate spread, which allows banks to borrow short from Treasury at near-zero rates and invest in other higher-yielding assets and earn back lots of money rather quickly. In essence, we’re allowing banks to earn their way back by arbitraging interest rate spreads against the U.S. government. This is rarely called a bailout and it doesn’t count as a normal budget item, but it is a bailout nonetheless. This type of implicit bailout brings high social costs by slowing down economic recovery (the interest rate spreads require tight monetary policy) and by redistributing income from the Treasury to the major banks.
Tyler Cowen, The Inequality that Matters
(He ends with a very disappointing, hands-thrown-up-in-the-air conclusion. I do not believe we are as bereft of policy options as he suggests. Possibly more on this later from me.)
NRO: One thing that matters to you and a lot of disciples of Austrian economics is inflation. Some think it’s necessary and good because, with sticky prices, it helps to stimulate growth. Can you explain your problems with steady inflation?
PAUL: It’s the worst thing any government could deliberately do. It’s counterfeit. It means some people will benefit at the expense of others. People who saved money and are living off their savings get cheated. It’s a moral issue: They might make 1 percent on their certificates of deposit, and they can’t live on that. And the government practically gives the money to the banks and then they turn it over and buy Treasury bills and bonds and make 3 or 4 percent. So they make billions of dollars after having just been rescued from their bankruptcy.
Ron Paul, interviewed in NRO.