The Federal Reserve is considering issuing its own debt for the first time, a move that would give the central bank additional flexibility as it tries to stabilize rocky financial markets. Speaking of government bonds, why should the Treasury have all the fun? The Federal Reserve is reportedly considering getting into the debt issuance business, borrowing money from you so that it can lend it to people you wouldn't touch with a barge pole. Sort of like money laundering, except legal. http://online.wsj.com/article/SB122888021757894023.html
From Bill Cara. The new ball game reference is to the complete failure of any system of check-and-balance. At is stands today, when the govt spends money, the Fed is supposed to be the control, which it does by raising and lowering interest rates, which it does by buying and selling Treasuries in its daily FOMC operations with the banks. Money is created when the Fed buys the Treasury paper back from the banks and with the cash in the banks, the banks can lend multiple times that balance to borrowers. The Fed also can eliminate money by selling Treasury instruments to the banks, which causes the banks to pull in loans. At a set level of assets to liabilities at the Fed, the system works -- albeit not too well after the Fed was allowed to (i) buy phony-baloney paper from the banks, which they could not sell back to the banks, which meant the Fed's control mechanism weakened, and (ii) the Fed was allowed to guarantee failing bank liabilities far more than the Fed had sufficient credit on its own to do, which required the Fed to get Treasury Secretary Paulson to go to Congress to work their deal, saying it was necessary to save the banks. But if the Fed can also now directly issue debt, the banks would become all-powerful and the Fed would be a loose cannon with no responsible admiral at the helm -- just a bunch of drunken sailors. Is that what we want? Sure, gold would zoom, and then it would crash and then it would zoom and then it would crash, and then... you get the point... and then you would be so whip-sawed, you'd quit the market. No free capital market would mean that these interventionists would set the price of assets. Is that what we want? We do know of course that the Interventionists would like to kill gold because that is the only real check-and-balance on the creation of fiat money and the operation of the financial system. If the Fed is allowed to gain control by issuing their own debt, then the Treasury (in order to solve its out-of-control debt problem) would not have to force Congress into legislating against the legal right of Americans to own and trade gold. Congress could blame the Fed. The Fed would then be king because whoever controls the gold makes the rules. This is precisely why the free capital market (ie, the public) needs to control the price of gold. Anyway, if the Fed gets control of their ability to directly issue debt and control all US banks, then Congress would be useless (ie, powerless), double entry bookkeeping systems would be useless, capital markets would be useless, and the world of finance would be a whole new ball game. We independent traders need to talk about this.
If this really bothers any of you, you need to do more reading. The current financial ponsi scheme is already so convoluted that this is nothing more than the cherry on top. It's not that the current system is becoming bad, it's that more and more people are becoming aware of how bad it has been for a long time.
09:41 Ladenburg discusses idea of Fed debt issue Ladenburg Thalmann notes that the WSJ reported that the Federal Reserve is considering issuing debt. Firm says this is no good and comes from a feeling of desperation. They note the Federal Reserve can print money whenever it chooses and this is the debt of the Fed. The beauty of this debt is that it carries no interest rate and it never has to be paid back. Firm believes the only reason that the Fed would stop using the printing press to fund its activities is if the organization believed that it was printing too much money. Their figures show that this may be the case. M-1 may have jumped by 41% quarter-over-quarter. This is greater than they have ever seen. They think the Fed may feel that it needs more money but it cannot print the funds because it will set off an inflation that it cannot control. By issuing debt, the Fed avoids the risk of hyper-inflation, but it creates other problems. Fed debt would take precedence over the Treasury debt in the markets. The Treasury can call on its taxing powers to fund its debt, but at the moment the Treasury is issuing debt to pay its debt. Firm says at some point this Ponzi scheme must end.
Ron Paul: Printing Money Only Prolongs The Pain Paul Joseph Watson Prison Planet.com Thursday, December 11, 2008 Amidst the hand-wringing of the automaker bailout debate, Ron Paul took the opportunity on the House floor yesterday to remind Congress that the real culprit behind the financial crisis is the Federal Reserve, and that allowing the Fed to continue to print money without audit will only prolong the pain. âIf you look at the grand problem we have itâs much much bigger,â said Paul. âThere were many who predicted that the climax would be exactly as we are witnessing,â said the Congressman before lamenting that no one seems willing to go back and discover how financial bubbles form and how they burst. âInstead we just carry on doing the same old thingâ¦.we spend more money, we run up more debt, we print more money, and we think thatâs gonna solve the problem that was created by spending too much money, running up debt, printing too much money and here we are today,â stated the Congressman, adding that Congress was debating about âtinkering on the edgesâ while failing to deal with the big problem. Paul said that the Fedâs creation of over $8 trillion dollars in obligations was outside the audit of Congress. âThey create this money and when the Fed chairman comes before our committee we ask, where did you dispose of this $2 trillion dollars that youâve created recently, he says well itâs not your business, he doesnât even have to tell usâ exclaimed Paul, adding that the Federal Reserve was out of control. âWeâre dealing only with finding victims, we cannot get rid of the debt,â said Paul, adding that the cause of the bubbles was the result of monetary policy dictated by the Federal Reserve system. Watch the clip below........ http://www.infowars.com/?p=6465
Is the Fed Taking the First Steps to Selective Default and Devaluation? JESSEâS CAFÃ AMÃRICAIN ( http://www.infowars.com/?p=6451 ) December 10, 2008 Editorâs note: It appears this is a device to create hyperinflation and usher in a new global currency. We have been looking for an out-of-the-box move from the Fed, but this was not it. The obvious game changing move would have been for the Treasury and the Fed to make an arrangement in which the Fed is able to purchase Treasury debt directly without subjecting it to an auction in the public market first. This is known as âa money machineâ and is prohibited by statute. But as usual the Fed surprises us all with their lack of transparency. They are asking Congress about permission to issue their own debt directly, not tied to Treasuries. This is known in central banking circles as âcutting out the middleman.â Not only does the Treasury no longer issue the currency, but they also no longer have any control over how much debt backed currency the Fed can now issue directly. If the Fed were able to issue its own debt, which is currently limited to Federal Reserve Notes backed by Treasuries under the Federal Reserve Act, it would provide Bernanke the ability to present a different class of debt to the investing public and foreign central banks. The question is whether it would be backed with the same force as Treasuries, or is subordinated, or superior. There will not be any lack of new Treasury debt issuance upon which to base new Fed balance sheet expansion. The notion that there might be a debt generation lag out of Washington in comparison with what the Fed issues as currency is almost frightening in its hyperinflationary implications. This makes little sense unless the Fed wishes to be able to set different rates for their debt, and make it a different class, and whore out our currency, the Federal Reserve notes, without impacting the sovereign Treasury debt itself, leaving the door open for the issuance of a New Dollar. What an image. The NY Fed as a GSE, the new and improved Fannie and Freddie. Zimbabwe Ben can simply print a new class of Federal Reserve Notes with no backing from Treasuries. BenBucks. Federal Reserve Thingies. Perhaps weâre missing something, but this looks like a step in anticipation of an eventual partial default or devaluation of US debt and the dollar.
What these guys are missing is that the FED obviously got to this idea in an attempt to avoid hyperinflation: They've printed a shitload of money, shipped it to the banks who in their turn dit NOT pump it into the private sector. Just yet ! If they start lending again, inflation is going to be an issue and they obviously are scared that that might get out of control (and that it's going to be damn difficult to take money out of the economy again without crashing it even harder) Hence the FED's creative idea to borrow money instead of print it. Borrowed money is money that's in circulation already, so it won't cause any extra inflationary risk. However, this is of course going to give additional problems. For instance, the FED notes will compete with treasury for money in the same market. It will be difficult to coordinate their common need for money.