# Finance Question: Why Don't State/City Governments Borrow Direc From The Federal Reserve? **URL:** \ **Category:** Factual Questions\ **Created:** [May 20, 2012, 5:35pm UTC](https://boards.straightdope.com/t/finance-question-why-dont-state-city-governments-borrow-direc-from-the-federal-reserve/622527 "2012-05-20T17:35:09Z")\ **Posts on this page:** 5\ **Page:** 1
**Author:** ![ralph124c](https://avatars.discourse-cdn.com/v4/letter/r/8797f3/32.png) [@ralph124c](https://boards.straightdope.com/u/ralph124c)\ **Post date:** [May 20, 2012, 5:35pm UTC](https://boards.straightdope.com/t/finance-question-why-dont-state-city-governments-borrow-direc-from-the-federal-reserve/622527/1 "2012-05-20T17:35:09Z")
For years now, the Fed has kept the prime rate at close to zero interest. Yet, cities and states (when they have to borrow) have to float bonds-and pay their investors rates around 3-6%. Why can’t they borrow direct from the Fed, and save their taxpayers on the interest? In most cases, State bonds are secured by land, tax anticipation, and are very safe-so why do the taxpayers have to pay the bankers twice to borrow? The Fed has no problem lending to banks like JP Morgan Chase (which just recorded a $2 billion gambling loss). It seems odd that the taxpayers are giving free money to privately owned banks, yet have to pay banks for the privilege of borrowing their own money!:smack: ---
**Author:** ![Simplicio](https://avatars.discourse-cdn.com/v4/letter/s/c37758/32.png) [@Simplicio](https://boards.straightdope.com/u/Simplicio)\ **Post date:** [May 20, 2012, 5:51pm UTC](https://boards.straightdope.com/t/finance-question-why-dont-state-city-governments-borrow-direc-from-the-federal-reserve/622527/2 "2012-05-20T17:51:41Z")
> [@ralph124c](#): > > It seems odd that the taxpayers are giving free money to privately owned banks, yet have to pay banks for the privilege of borrowing their own money!:smack: The money the Fed lends to banks doesn’t come from taxpayers. ---
**Author:** ![TriPolar](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tripolar/32/3008_2.png) [@TriPolar](https://boards.straightdope.com/u/TriPolar)\ **Post date:** [May 20, 2012, 6:00pm UTC](https://boards.straightdope.com/t/finance-question-why-dont-state-city-governments-borrow-direc-from-the-federal-reserve/622527/3 "2012-05-20T18:00:38Z")
> [@Simplicio](#): > > The money the Fed lends to banks doesn’t come from taxpayers. In that it isn’t tax revenue, that’s true. But it is the taxpayer’s liability as soon as the money is printed. In more abstract ways it is all citizen’s money, taxpayer and non-taxpayer alike. ---
**Author:** ![Simplicio](https://avatars.discourse-cdn.com/v4/letter/s/c37758/32.png) [@Simplicio](https://boards.straightdope.com/u/Simplicio)\ **Post date:** [May 20, 2012, 6:07pm UTC](https://boards.straightdope.com/t/finance-question-why-dont-state-city-governments-borrow-direc-from-the-federal-reserve/622527/4 "2012-05-20T18:07:31Z")
> [@TriPolar](#): > > In that it isn’t tax revenue, that’s true. But it is the taxpayer’s liability as soon as the money is printed. In more abstract ways it is all citizen’s money, taxpayer and non-taxpayer alike. By what specific mechanism is it the “taxpayer’s liability”? ---
**Author:** ![TriPolar](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tripolar/32/3008_2.png) [@TriPolar](https://boards.straightdope.com/u/TriPolar)\ **Post date:** [May 20, 2012, 6:13pm UTC](https://boards.straightdope.com/t/finance-question-why-dont-state-city-governments-borrow-direc-from-the-federal-reserve/622527/5 "2012-05-20T18:13:40Z")
> [@Simplicio](#): > > By what specific mechanism is it the “taxpayer’s liability”? Sorry, meant to say citizen’s liability there. In the sense that every loss is decreasing the value of the cumulative assets of the nation. No it’s not a tax liability, if it’s not paid back, just a loss. ETA: Assuming it’s printed money, and not borrowed.