BradLohaus
04-13-2008, 09:55 PM
Fed Weighs Its Options in Easing Crunch
http://online.wsj.com/article/SB120768896446099091.html
The Federal Reserve is considering contingency plans for expanding its lending power in the event its recent steps to unfreeze credit markets fail.
Among the options: Having the Treasury borrow more money than it needs to fund the government and leave the proceeds on deposit at the Fed; issuing debt under the Fed's name rather than the Treasury's; and asking Congress for immediate authority for the Fed to pay interest on commercial-bank reserves instead of waiting until a previously enacted law permits it in 2011.
No moves are imminent because the Fed still has plenty of balance sheet room for additional lending now. The internal discussions are part of a continuing effort at the Fed, similar to what is under way at foreign central banks, to determine its options if the credit crunch becomes even more severe. Fed officials believe the availability of such options largely eliminates the risk of exhausting its stockpile of Treasury bonds and thus losing its ability to backstop the financial system, as some on Wall Street fear.
A couple of good articles on this news:
The Fed is Terrified
http://seekingalpha.com/article/71907-the-fed-is-terrified
Read the entire WSJ article. It's a good one. That the Fed officials are having these kinds of discussions at all shows just how terrified of the perception setting in that we are following Japan, which of course we are.
The Fed is effectively in a position of not to being able to print money to buy Treasuries from banks, because of restrictions mentioned in the WSJ article and also because the banks are insolvent. Simply put, banks do not have the cash to accumulate Treasuries on their books to sell to the Fed this time around. And more writedowns on commercial real estate, auto loans, credit card debt, Alt-A mortgages, and pay option arms are coming. This will require still more capital raising efforts...
The Fed is now considering borrowing from the Treasury (US taxpayers). Were the Fed to have to do this to remain whole, i.e., have the Treasury underwrite the Fed's balance sheet, the US central bank would be de facto insolvent, having insufficient assets to carry out its mandate.
The perceived invincibility of the Fed's ability to reflate is now clearly in question. The Fed's own discussions prove it.
How far is too far?
http://www.howestreet.com/articles/index.php?article_id=6180
So maybe this is just a case of desperate times calling for desperate measures. But don't we have to stand up and ask: "Where does it all end?" How far are we going to allow the Fed to go to subsidize Wall Street? What the heck happened to free markets? Capitalism?
The Fed is clearly playing a perilous game by slashing rates and shifting the presses into overdrive at a time when inflation pressures are high, the dollar is weak, and commodities are through the roof.
So Wall Street may appreciate what the Fed is doing. They may like the fact that they're on the receiving end of all this Fed largesse. But the rest of us are taking a real hit to our standard of living as a result ... and we're setting some dangerous precedents for the future.
http://online.wsj.com/article/SB120768896446099091.html
The Federal Reserve is considering contingency plans for expanding its lending power in the event its recent steps to unfreeze credit markets fail.
Among the options: Having the Treasury borrow more money than it needs to fund the government and leave the proceeds on deposit at the Fed; issuing debt under the Fed's name rather than the Treasury's; and asking Congress for immediate authority for the Fed to pay interest on commercial-bank reserves instead of waiting until a previously enacted law permits it in 2011.
No moves are imminent because the Fed still has plenty of balance sheet room for additional lending now. The internal discussions are part of a continuing effort at the Fed, similar to what is under way at foreign central banks, to determine its options if the credit crunch becomes even more severe. Fed officials believe the availability of such options largely eliminates the risk of exhausting its stockpile of Treasury bonds and thus losing its ability to backstop the financial system, as some on Wall Street fear.
A couple of good articles on this news:
The Fed is Terrified
http://seekingalpha.com/article/71907-the-fed-is-terrified
Read the entire WSJ article. It's a good one. That the Fed officials are having these kinds of discussions at all shows just how terrified of the perception setting in that we are following Japan, which of course we are.
The Fed is effectively in a position of not to being able to print money to buy Treasuries from banks, because of restrictions mentioned in the WSJ article and also because the banks are insolvent. Simply put, banks do not have the cash to accumulate Treasuries on their books to sell to the Fed this time around. And more writedowns on commercial real estate, auto loans, credit card debt, Alt-A mortgages, and pay option arms are coming. This will require still more capital raising efforts...
The Fed is now considering borrowing from the Treasury (US taxpayers). Were the Fed to have to do this to remain whole, i.e., have the Treasury underwrite the Fed's balance sheet, the US central bank would be de facto insolvent, having insufficient assets to carry out its mandate.
The perceived invincibility of the Fed's ability to reflate is now clearly in question. The Fed's own discussions prove it.
How far is too far?
http://www.howestreet.com/articles/index.php?article_id=6180
So maybe this is just a case of desperate times calling for desperate measures. But don't we have to stand up and ask: "Where does it all end?" How far are we going to allow the Fed to go to subsidize Wall Street? What the heck happened to free markets? Capitalism?
The Fed is clearly playing a perilous game by slashing rates and shifting the presses into overdrive at a time when inflation pressures are high, the dollar is weak, and commodities are through the roof.
So Wall Street may appreciate what the Fed is doing. They may like the fact that they're on the receiving end of all this Fed largesse. But the rest of us are taking a real hit to our standard of living as a result ... and we're setting some dangerous precedents for the future.