Exchange Stabilization FundThe Exchange Stabilization Fund (ESF) consists of three types of assets: U.S. dollars, foreign currencies, and Special Drawing Rights (SDRs), which is an international reserve asset created by the International Monetary Fund.
The ESF can be used to purchase or sell foreign currencies, to hold U.S. foreign exchange and Special Drawing Rights (SDR) assets, and to provide financing to foreign governments. All operations of the ESF require the explicit authorization of the Secretary of the Treasury ("the Secretary").
The Secretary is responsible for the formulation and implementation of U.S. international monetary and financial policy, including exchange market intervention policy. The ESF helps the Secretary to carry out these responsibilities. By law, the Secretary has considerable discretion in the use of ESF resources.
The legal basis of the ESF is the Gold Reserve Act of 1934. As amended in the late 1970s, the Act provides in part that "the Department of the Treasury has a stabilization fund …Consistent with the obligations of the Government in the International Monetary Fund (IMF) on orderly exchange arrangements and an orderly system of exchange rates, the Secretary …, with the approval of the President, may deal in gold, foreign exchange, and other instruments of credit and securities.
https://home.treasury.gov/policy-issues/international/exchange-stabilization-fund
Today Trump signed in to law a whole slew of new alphabet-soup agencies: CPFF (Commercial Paper Funding Facility) – buying commercial paper from the issuer. PMCCF (Primary Market Corporate Credit Facility) – buying corporate bonds from the issuer. TALF (Term Asset-Backed Securities Loan Facility) – funding backstop for asset-backed securities. SMCCF (Secondary Market Corporate Credit Facility) – buying corporate bonds and bond ETFs in the secondary market. MSBLP (Main Street Business Lending Program)
Thing is, the Fed isn’t allowed to do any of these things. But the Dep’t of the Treasury, under CEO Steve Mnuchin and President Donald J. Trump can.
The Fed will finance a special purpose vehicle (SPV) for each alphabet soup. Treasury, using the Exchange Stabilization Fund, will make an equity investment in each SPV, acting as banker and providing financing.
Trump is very smart in Finance (Good Brain) but I suspect Mnuchin’s fingerprints are all over this construct. It’s not only brilliant but the Dems have no idea what just happened, they’re too busy pissing and moaning over their green bad deal to realize Trump just acquired the keys to the government’s printing press.
This is going to be great!
MARK / esf