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A Summary Of The Fed's Various Open Market Intervention Techniques
For all who have written asking for a clear and succinct summary of all of the Fed's various market intervention mechanisms, we provide the following overview report written by the Fed itself. Topics covered include Monetization, Excess and Borrowed Reserves, Open Market Operations (Outright and Temporary), Repo transactions, Currency, Clearing Balances,and many others.
This note on Excess Reserves is particularly amusing (this is as of 1997 so the no interest earned provision is no longer true): "Excess Reserves (ER). A depository institution may choose to hold balances at its Federal Reserve Bank in addition to those it must hold to meet reserve requirements; these balances are called excess reserves. Depository institutions hold excess reserves to avoid deficiencies in their required reserve balances and to avoid overnight overdrafts, both of which are subject to charges. In general, depository institutions hold few excess reserves because these holdings do not earn interest. Most excess reserves are held by small depository institutions for whom the cost of very close management of reserve balances would exceed the interest they could earn by holding fewer excess reserves. Vault cash held in excess of reserve requirements is not included in excess reserves or in total reserves."
And the following brief note on monetization: "The Desk may not add to the Federal Reserve’s holdings of securities by purchasing new securities when they are first auctioned because it has no authority to lend directly to the Treasury. Therefore, it must make any additions to holdings
through purchases from primary dealers in the secondary market or directly from foreign official and international institutions."
We hope readers begin to grasp the critical role the Fed has in controlling not just America's monetary, but also political fate.
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In 1991, following disclosures of bidding irregularities at Treasury auctions by Salomon Brothers,Inc., the Treasury, the Securities and Exchange Commission, and the Federal Reserve reviewed many aspects of the market for Treasury securities, including the primary dealer system.
The review prompted the Federal Reserve to establish a more open system of trading relationships based primarily on the value of the dealers as counterparties for the Federal Reserve and the Treasury. The Federal Reserve dropped the market share criterion, which was viewed by some market participants as a barrier, and discontinued its dealer surveillance function.
Wow.... in plain English.
Nobody sees anything coming because the wolves are guarding the hen house.
Haha, the dollar is fighting for its life at the .75 level. It breached it a couple times today. Let's see where we close.
GOLD BITCHES!!!
I am Chumbawamba.
Gold is a crowded trade. You really should bail out, because I am fully invested in the trinket and buying more. I'm a good contrary indicator.
Doing God's work.
If only the people at the Fed, Treasury, Goldman, and the Street made on average what the average minister or rabbi makes, that would certify it as God's work.
Otherwise, as I understand it, it is the devil's work.
Zero Hedge is the only place since physics class that has ever made me feel so stupid
Hang in kid... lots of us come here feeling stupid... if you have a brain and an enquiring mind you'll figure it out in short order...
Tyler if you want to be a respectable journalist then you must remember that these techniques are known as "tools". The Fed's "tools". It has a nice working-class ring to it and helps to sidestep that awkward class warfare problem.
It's definetly the devils work.
So why would the Fed decide to pay interest on excess reserves when all everyone keeps talking about is getting the credit markets flowing? You'd think they wouldn't want to create an incentive to hoard cash.
Two possibilities:
A. As history has shown by the American Bankers Association, they can create inflation and deflation, booms and busts through the increase or decrease in available credit/money supply. History has shown that previously they purposely inflated asset prices (increasing money supply) to collect more interest on a larger asset base and when that is played out, history has shown that they have crashed the asset markets through credit contraction (credit not available) so that they can foreclose on assets they have given loans for. It's demonic.
B. A more naive interpretation would be that to manage inflation and be able to reign in the money supply from the market in the case of massive inflation, the interest rate would be a tool to pull in available credit. If the interest rate is high enough for the banks, they won't loan, credit contracts, and banks foreclose on assets they have provided loans for (that's what's happening now).
Great research. What is missing it the raison d etre. WHY? Could there be another way to get better results with less mordancy?? Or, will we merely end up in a massive debt w/off in...????
The cash hoarding on the sidelines was a feature of Weimar Germany before the hyperinflation took place. Once the germans realised that inflation was upon them they spent up and this cash came out of the sidelines and was spent or had to be spent as prices rose faster than incomes. Even the middle class were not spared as they were forced to sell their assets at fire sale prices to be able to buy necessities. So the people were wiped out but so was the government debt. Maybe this is what the Fed has in mind for the toxic 'assets' that it has taken off the hands of the banks. This is starting to look like it has all been planned well in advance of the GFC.
"We hope readers begin to grasp the critical role the Fed has in controlling not just America's monetary, but also political fate."
You should mail this to congress. Then perhaps our legislators will grasp the critical role.
As far as monetary policy is concerned, you can rest assure I grasp everything thats made public. The question is, what is off balance sheet? what is not public?
Greedy undisciplined legislators unable to balance budgets, control costs and shrink government + Corrupt FED with the power to create Fiat money and spend without control or oversight, have so incredibly violated the citizens trust and squandered our wealth, that they no longer deserve the peoples allegiance or respect.
Honest, non-corrupt representatives are few and far between, and i am not sure we have any non-corrupt senators. They all know what is going on and all they care is whether or not they will have funding for their next campaign. Since the privately held federal reserve and all it's agent and affiliates amount to more than half of the DOW, you can see the power behind this truly insidious evil force...so mailing this to our legislators would likely be a waste, but of course you can try...just hope we can find new non-corrupt people to replace all the scumsuckers that represent and legislate for this cartel.