Posted on 03/10/2008 6:15:48 PM PDT by shrinkermd
With worsening strains in credit markets threatening to deepen and prolong an incipient recession, analysts are speculating that the Federal Reserve may be forced to consider more innovative responses -- perhaps buying mortgage-backed securities directly.
"As credit stresses intensify, the possibility of unconventional policy options by the Fed has gained considerable interest
...Since 1932, the Fed has had the authority to lend, against collateral, to individuals, partnerships or corporations other than banks in "unusual and exigent circumstances," subject to the vote of five members of the Board of Governors. (The board has seven seats, but two are currently vacant.) This power has never been used.
Mr. Feroli noted that Congress in 1966 gave the Fed temporary authority, made permanent in 1979, to purchase obligations of government-sponsored enterprises, such as Fannie Mae and Freddie Mac.
So far, the Fed hasn't purchased GSE obligations except in its short-term repurchase operations. When the federal budget was in surplus, the Fed considered outright purchases of GSE obligations, but judged against such a move as it would reinforce the perception of an implicit government guarantee.
Last week, the Fed said it would lend banks $100 billion starting this week in 28-day loans through its new Term Auction Facility, at which banks can post a wide variety of collateral, including mortgages, corporate loans and other items that have become harder to sell in the open market. And it said it would make money-market loans of as much as $100 billion to its network of 20 bond dealers for 28 days, double the usual maximum term, and structure them to encourage dealers to submit mortgage-backed securities guaranteed by Fannie and Freddie Mac.
Sen. Christopher Dodd (D., Conn.), chairman of the Senate Banking Committee, has suggested creating a new government corporation that could buy mortgage-backed securities
(Excerpt) Read more at online.wsj.com ...
Whether the title to the capital good created is a share of equity from a direct investor or a bond to bank based on loans on funds on deposit is more or less irrelevant. When the investment was created out of thin air rather than based on a conscious decision to set aside goods and services for creation of capital goods with an expectation of interest on the investment is different.
In one case, the public who provide the goods and services, by setting aside earned money, i.e. their right to make demands for goods and services, earns a return.
In the other case, where the funds are created out of thin air, the invested goods and services are stolen from the economy, and the returns go exclusively to the banker that holds the paper rather than the investors who now unwittingly provide the goods and services upon which the investment is made.
There is all the difference in the world between a loan at interest and a public stickup.
You are a scoundral for attempting to defend the morality of the stickup artist in bankers suit armed with a printing press. Even the mafia takes its ill gotten gains and invests in income earning property.
And your economic sophistry is dripping in your basic ignorance of economic fundamantals.
LOL!
You’re good at laughing, bad at explaining.
Or do you pretend that no one else shall have the right to trade in any good you possess in any quantity, without a prior "by your leave" from you, since it might change the value of something you own? You realize of course that as soon as you generalize that right to the rest of us, no one will have a right to trade anything at any price i.e. economic liberty will have disappeared.
The Fed is not obligated to differ from the market and place a higher value on dollars than the rest of the world does. And since they are its own debts, it would be remarkably silly to expect it to. Every other isssuer does the reverse, or they'd never issue anything.
Next he will explain the same thing with ordinary banks, which also create new money (bank deposits) whenever they lend, and will then pretend that bank customers paying the bank with their own debts have given nothing in return for that money. You can tell, because mortgages aren't liabilities of their issuers, you see.
Every scrap of it is one entry accounting. They imagine their top line nominal investment returns unchanged and think any reduction in those is a theft from them, blissfully unware of how lethargic their top line would be without modern finance.
There is in fact a principled Austrian case against any net new issuance of fiduciary media, but these rubes do not know it, let alone know the first thing about what it wrong with that case. There is also an entirely sound case in favor of price stability as a monetary policy target, but it is pragmatic and not an absolutist justice claim ("pickpocket", "robbery", etc, etc). And it runs not through the Misesean wage fund theory mistake, but effects on price signaling and the efficiency of private, intertemporal planning.
Do you have a point? Be succinct.
But you still haven't managed to show the slightest harm to yourself in the matter. It was so obvious to you that commodity prices were certain to spike because of excess money creation by the Fed, right? So you were long lots of commodities and short lots of dollars by owning them with high leverage, right? So you are making out like a bandit, maybe even picking everyone else's pockets, right?
No? Did you find any of it a little harder to forsee? Why would that be? Or do you imagine you have a right to your 50 to 1 leverage futures trades paying off big and *also* the dollars they pay off in being worth more than yesterday? You *did* win gobs and gobs on such trades though, didn't you? Please don't tell us you are predicting only things in the rearview mirror.
My second point is that inflation does not pick your pocket or break your nose.
My third point is that there is nothing ruinous about credit expansion.
Succint enough? If you need to understand why, you will have to develop an attention span beyond a music video.
You believe that if a bank gets $1 in reserves as a gift from the Fed that $5 in deposits suddenly appear in the banks accounts? LOL!
Baghdad Bob has nothing on you.
Sheesh, you expect me to actually read that stream of consciousness screed? If you need 10,000 words to make a point, you have no point.
All you need to do is show how.
Please show us how a bank with $200 billion in borrowed T Bills can loan $2 trillion.
I don't have time to put on an econ 101 course here.
You don't have the knowledge or ability either.
Do you think you have a prior right to your income being anything other than the real usefulness of your services to other people? Do you think the latter cannot change whenever the world does? Why do you think they can't go to zero tomorrow, perfectly fairly, if your trade turns out to be the next buggy whip industry?
Do you actually have any idea how much you may have *benefitted* indirectly, from an employer, customers, suppliers, tradespeople around your town etc, themselves benefitting from either new credit or from price level changes?
Can you measure the volatility of a commodity price series? Does your nominal salary have the same standard deviation? Is there any reason whatever for two economic price series with entirely different risk levels to have the same trend rate?
If CPI is bogus, what is the true rate of inflation over the last 25 years? Can you tell looking at a commodity price series, any commodity price series?
As for your costs, why are your costs different in composition or accounting from your sources of income? I mean that seriously, reason it out from first principles. Do you adapt your costs to the signals from relative prices, or leave them fixed?
What assets do you own, and how do you expect them to be affected by changes in the price level?
In English man. In English. Please.
Anyone who is interested in understanding the process can read the article. Fractional reserve banking isn’t a mystery.
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.