Posted on 12/10/2008 12:12:08 AM PST by fightinJAG
Dec. 10, 2008 (Reuters) — The U.S. Federal Reserve is considering issuing its own debt for the first time, the Wall Street Journal said, citing people familiar with the matter.
Fed officials have approached Congress about the move, which could include issuing bills or some other form of debt and would provide the central bank with more flexibility to tackle the financial crisis, the Journal said.
The Fed could not be immediately reached for comment.
The Fed can already print as much money as it wants, but issuing debt is largely the province of the Treasury Department.
The Fed stepped in with emergency credit for investment bank Bear Stearns in March and insurer American International Group in September, and threw open its direct loan window to Wall Street firms this year in a bid to stabilize financial markets amid a credit freeze.
(Excerpt) Read more at newsdaily.com ...
If the Federal Reserve is talking about issuing debt, we'll be paying their interest, too.
The venerable Richard Russell of Dow Theory Letters writes about the Fed:
“I still can’t get over the whole Federal Reserve racket.
Consider the following - - let’s take a situation where the U.S. government needs money. The U.S. doesn’t just issue United States Notes, which, of course it could. These notes would be dollars backed by the full faith and credit of the United States. No, the U.S. doesn’t issue dollars straight out of the U.S. Treasury.
This is what the U.S. does - - it issues Treasury Bonds. The U.S. then sells these bonds to the Fed. The Fed buys the bonds. Wait, how does the Fed pay for the bonds? The Fed simply creates money “out of thin air” (book-keeping entry) with which it buys the bonds. The money that the Fed creates from nowhere then goes to the U.S. The Fed holds the U.S. bonds, and the unbelievable irony is that the U.S. then pays interest on the very bonds that the U.S. itself issued. (With great profit to the private owners of The Fed - - Ed. Note) The mind boggles.
The damnable result is that the Fed effectively controls the U.S. money supply. The Fed is not even a branch of the U.S. government. The Fed is not mentioned in the Constitution of the United States. No Constitutional amendment was ever created or voted on to accept the Fed. The Constitutionality of the Federal Reserve has never come before the Supreme Court. The Fed is a private bank that keeps the U.S. forever in debt - - or I should say in increasing debt along with ever rising interest payments.
How did the Fed get away with this outrage? A tiny secretive group of bankers sneaked through a bill in 1913 at a time when many in Congress were absent. Those who were there and voted for the bill didn’t realize (as so often happens) what they were voting for.
Richard Russell, “Richards Remarks,”
kinda like a freddie mac: private profits and socialized risks
It still makes little sense to me for the Federal Reserve Bank, as a bank of issue and as a central bank, to borrow in dollars that it can just create. The putative concern is that just "running the presses" and creating lots of new money is inflationary and damages the Fed's ability to control interest rates, but I don't think that the Fed is actually all that worried about inflation --- deflation has been on its screens for a while.
To now have the Fed to borrow dollars that it originally created would essentially contract the money supply and I cannot see why the Fed would want to do that in this environment which is already closer to deflation than it is to inflation --- the proposed borrowing by the Fed seems to me a poorer policy choice than simply re-enacting the Japanese QEMP.
These are certainly interesting times. There has also been some talk of the Treasury issuing "Obama Bonds", which like "Carter Bonds" would be borrowed in currencies other than the dollar ("Obama bonds" would most likely be issued for yen since there has already been discussion in Japan of this issue, though "Carter Bonds" were borrowings in Swiss francs and German marks).
A recent story on the possibility of "Obama Bonds": Japan economists call for 'Obama bonds'
An old story about "Carter Bonds": Shrinking Role for U.S. Money
Jesse writes:
We have been looking for an out-of-the-box move from the Fed, but this was not it.So, if I am reading Jesse correctly, he's wondering if perhaps this is leading toward the following:The big kahuna move would be 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 'a money machine' and is prohibited by statute.
But as usual the Fed surprised us. They are asking Congress about permission to issue their own debt directly, not tied to Treasuries.
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 the currency notes without impacting the sovereign debt itself to leave the door open for the issuance of a new Dollar.
What an image. The NY Fed as a GSE, the new Fannie and Freddie. Ben can simply print a new class of Federal Reserve Notes with no backing from Treasuries. BenBucks.
Perhaps we're missing something, but this looks like a step in anticipation of an eventual partial default or devaluation of US debt and the dollar.
You know what they say: When the going gets tough, the debt holders get screwed.
The Fed returns all profits not needed for operations to the Gov at the end of each year. It is a substantial amount. If some of the bailouts don’t work the Fed won’t be returning that money, they’ll be using it to offset their losses.
This is a weird development.
The Fed returns all profits not needed for operations to the Gov at the end of each year. It is a substantial amount. If some of the bailouts don’t work the Fed won’t be returning that money, they’ll be using it to offset their losses.
This is a weird development.
I doubt this will add anything except another level of insanity.
Yes - just another level of insanity - but perhaps a Really Big Level thereof ;).
So then we can have two choices with the Fed rather than just the one we have now. Currently we can opt for the Fed printing money which destroys our savings and raises the price of everything. That $.05 candy bar I used to buy when I was a kid is now $1.25. Something happened and the Fed knows what it is. If we now let the Fed borrow money then you add to the inflation problem with a new system that just sucks capital from productive applications in order to feed it to banks so that they can avoid bankruptcy. What a system. What a country.
Nationalize the Fed. Then we owe nobody. Write off those federal debts the fed holds.
Think of the Fed as the Fannie Mae of Banking. You know, private/public for profit company for...for...our own good. And the children. Don’t forget the children, some one has to pay our debts off.
Maybe now, but I do not believe that has been the case in the past.
The directors of the Federal Reserve, iirc, have other fish to fry as well, and can profit from knowledge of upcoming actions of the Fed.
Leisler will be, again, printing his own bonds. This time around I’ll be using a laser printer so that note holders won’t have that ink running problem.
Also, you’ll be able to purchase your bonds electronically, and at no extra charge, pick your favorite design from such favorites as 1889 Apollo Peruvian Tin Mine Company, to the 1979 Disco Fat Burn Belt Company. Also you’ll be able to upload your favorite picture as a background if you wish.
Otherwise Bonds will be with the usual imitation Rocco “Ruins of American Empire” with the lovely Capital Columns wrapped in ivy and attended by a lonely pit bull herder.
bookmark this post for later— thanks.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.