Bernanke’s Fed Bills coming to a bank near you…How the Fed proposes to issue its own debt

EB's picture

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californiagirl's picture

Hmmm... Does this have something to do with the "Group of Thirty" and SEC proposals to turn money markets into illiquid hedge funds?  If Banks' excess reserves decline (e.g. due to looming commercial real estate debt debaucle or continued writedown of other bank assets and bad mortgages), won't the banks need to move money from their "excess" funds parked at the FED to their actual reserves?  Then the FED has to raise money to give it back to the banks.  Or, can they work on another change in the law to reduce the required reserves or allow a portion of those reserves to remain at the FED instead of the bank's own vaults.  After all, why have so much money sitting at the banks if money markets can be frozen and bank customers can be denied withdrawal of their funds?

Anonymous's picture

So they do this and GS et al will just gun the stock market into the ionosphere on the back of cheap funds. Again, Mr Bernanke, this solves problems in the real economy how exactly?

Why don't they just cut the crap, forget this trickle down garbage and just deposit money straight into citizens' bank accounts in a non-biased way, that they just printed out of thin air, and be done with it?

Anonymous's picture

Do not pass Go, do not collect $200.

Your currency is being replaced (queue bitch slap across the face of all US citizens).

Mabe next time the US treasury gets raped you won't turn a blind eye and look away like the cowards you are.

Anonymous's picture

What do you mean the Fed doesn't issue its own debt?

It always has done, the dollar is a Federal Reserve Note (note the NOTE). It is just (supposedly) the more marketable form of the bond the Fed holds as the asset to back its NOTE issue.

When the Fed repos (& buys outright) government and increasingly, private bonds it is creating 'deposits', that is, borrowing 'money'. These deposits can then be withdrawn by the 'depositors' as Federal Reserve Notes. The trouble is bonds are not really money at all, they are obligations to pay money.

So, the Fed is really borrowing obligations, turning it into dollars which are then passed off as money by government decree.

Anonymous's picture

-1. FED is collecting interest for its services at the rate it calls the "discount". The income so collected is further free of any levies, taxes and such. The "note" is a tender for "all debts, private and public". FED is debt free, ad perpetuum.

Anonymous's picture

I think I will issue my own notes to pay my taxes with. Farging Bastages.

Anonymous's picture

In short and in summation, get your money the hell out of everything.

Anonymous's picture

What the hell do you mean, "your money?"

It all belongs to the masters that crashed everything. It was never yours, nor will it be, even if it's taken out - welcome, surf.

Doesn't reckless boomer entitlement mean anything anymore?

cocoablini's picture

I just issued 300 billion in zero interest notes. See- it's that easy. Come and get it folks

Anonymous's picture

I do not see any problem with the Fed issuing its own debt. The Fed is a privately owned company and should be able to issue debt as any other privately owned company. It may look funny to many people when the Fed buys Treasuries since it looks like the Federal government buys its own debt. Actually, a private company buys the Government debt. It owns all of the US since the US bankrupted in 1913.

jm's picture

Aside from the legal issues. The problem is that that if their asset returns don't meet cost of operation, they have to print money to cover.   

Avoiding such money printing was precisely the motivation for having an independent monetary authority in the first place.


Anonymous's picture

With the potential lock up of money market funds, due to their toxic contents and treasuries, which will be agonizing to those who do not get the message, this is just icing on the cake.

The Fed and the Treasury both selling debt, and the Fed has the banking business locked up. How does that play out in the world of unintended consequences?

We will have big ads on TV offering AAA safe investment in both bankrupt entities. Can't wait to send in my money.

Some one needs to pull the stop lever on these deranged clowns and their means of theft. In my Econ 101 class the prof offered this pearl " don't ever loan money to the bankrupt because for some reason you will never see it again." That seems to still ring true, especially in the many ringed ponzi circus that we now live in.

I think this hyper complicated stuff is concocked to hook the arrogant who would never admit that they do not understand it a bit. It was never made to be understood. But it sounds so good in the promotion.

Matt Tabbi your mission if you choose to accept it ...

Quantitative Wheezing's picture

Just figure money center banks will purchased treasuries until 40% of assets are held in treasuries.  This may take a decade but that's where we are headed.  Treasuries will be supported by the massive cash held on reserve....

Charles Mackay's picture

Effectively it does not really make much difference to QE2 if the Fed issues its own notes, or if the Fed just has its own term CDs for banks.  Some in the Fed have already said the latter is legal.

Alternatively the Fed could bypass this plan altogther, since it appears that Fannie and Freddie will need to borrow huge sums from the Treasury.  To help finance the Treasury, the Fed could directly lend them money under some type of 'supplemental finance program'.  If that doesn't work, banks could buy the SFP bills, and then repo them back to the Fed under some other type of new program.

The bottom line is that one way or another the Fed is going to create or buy some notes/bills and the Treasury is going to seek out a way to finance the extra agency debt.

The only question remaining is - when will QE2 start?


Assetman's picture

The only question remaining is - when will QE2 start?

QE2 will start when there is enough underlying demand to issue a new wave of Treasuries at very low cost.

An engineered global flight to quality would certainly be timely sometime this year, now wouldn't it?

EB's picture

I agree. The point was to point out the hypocrisy. Another avenue is for the Fed to put the $4.4 billion in intragovernmental treasury holdings on its books through a permaroll term facility. The agencies would then purchase a corresponding amount of on the run treasuries.

Charles Mackay's picture

I agree but I think that would require a federal law, being because there actually is already a federal law allowing the Treasury Department to threat the intra-governmental treasury holdings of the huge Thrift Savings Plan as 'money' which can be borrowed by the Treasury - and in return they issue the TSP an IOU.

However I would not put it past the Fed to put a plan like this through with only the flimsiest legal cover.


Orly's picture

Is it just me, or can I barely read this?

SimpleSimon's picture

Finally, I could read something I could understand in a HFT moment -your comment.  The rest of the article jogs the fogs of this Balvenied mind but needs some more neat shots before I can attempt again.

But where is the Fed paying interest from?  By printing more money?  Isn't that another transfer of wealth to their masters on Wall Street by devaluing the dollar?

A_MacLaren's picture

" But where is the Fed paying interest from?  By printing more money? "

Possibly.  The Fed does hold significant quantities of Treasuries and Trashuries (Fannie/Freddie MBS).  These instruments (I hesitate to call these debt obligations "assets") pay interest to the Fed, while the required and excess reserves and currency are the Fed's liabilities. 

The currency is a zero interest note (FRN's) and so there must be significant cash inflow from the other investment instruments.  The Fed would merely divert some of the seniorage otherwise payable to the Treasury on the priveledge of issuing currency and divert it to the Banksters.

Hmmm....   Another way to enrich the owners of the privately held Federal Reserve at the expense of the Debt Slaves, I mean the citizens...


spanish inquisition's picture

So if the Fed is printing money to pay interest, it technically is not going to the Treasury first. Which means the Fed can print money and give it to anybody or any country? I can see why they don't want to be audited.

I am probably over extrapolating here, but it kind of makes sense or I am really drunk.

edit- is there anything that says the Feds only customer is the Treasury?

Anonymous's picture

The Feds only customer is anyone that doesn't make over $250,000 a year.

Did you think it had anything to do with the common man? Sucker.

Orly's picture

So sorry, SimpleSimon.  You must have me confused with Chauncey Gardner.

I was referring to the small type.  I can barely read this.



jm's picture

This is a lot to chew on.  The continued nominal GDP contraction assures no hope for a rational exit strategy.

Fed notes could very well be the last straw before the rest of the world says to hell with the current system and takes their chances.

knukles's picture

Zero Coupon Perpetual Debt is on offer by the FED 24/7. 

Called dollars; liability, pays no interest, never matures. 

Whaddyamean they don't issue debt?  Wake up! 

Anonymous's picture

If you dont want these dollars that you imply are worthless please feel free to send them over to me. Thanks in advance.

MarketTruth's picture

Will gladly send you modern Federal Reserve Notes (dollars) in exchange for other USA currency/legal tender. As such, for every 1 ounce Gold American Eagle coin as produced by the United States Mint i shall send you the face value of $50 plus an additional $50, so you are effectively doubling your 'money'. For every Silver American Eagle as issued by the United States Mint i shall send you $5, effective giving you 5x the face value of said USA legal currency. If you agree, please e-mail me. Thank you.