The Fed Asks Selected Traders, How Much Money Do You Want and When?
In an unprededented move, the Federal Reserve surveyed its selected traders on their needs for quantitative easing. by Gene DeNardo
(libertarian)
Sunday, October 31, 2010
It what may have been an unprecedented move, the Federal Reserved surveyed their selected traders and dealers for their opinion on how much money they would like to receive when the Fed starts its "quantitative easing" program and when they would like to receive it. The Fed will meet November 2nd and 3rd to decide on monetary policy concerning bond purchases from the 18 traders. [link edited for length]
Bloomberg News, which obtained a copy of the Fed survey, reported that it queried as to not only what size the debt purchases should be, but also over what time span. Estimated amounts are anywhere from 100 billion to 1 trillion.
This solicitation for ideas from its traders on just how much money to create in order to purchase securities from these same traders further extends the concept of money production even deeper into the cartel we refer to as our financial system. It has been known since the creation of the Federal Reserve in 1913 that empowering a private corporation with money creation was unconstitutional. It has also been understood that the cartel that formed around the Federal Reserve to facilitate this corporate distribution of new currency was a privileged and select group. But the recent survey is a gross admission by the Fed that the power to create money is not only out of the control of Congress, but now also out of the control of the Fed.
The Fed has been at wit's end trying to revive a stagnant economy and bolster the values of multitudes of asset securities that it and all the major financial firms and investment groups hold in their portfolios. With interest rates near zero, trillions of fairly recent dollars sitting in bank vaults, the Fed is not really sure what will work, if anything. The money is already out there, but instead of being loaned out, it is being held to "account" for the diminished real value of the asset securities.
What compounds the conundrum is debt. Inflation is obviously what the Fed wants, but inflation could bring with it the demand for higher interest. Higher interest could severely restrain the ability of the Fed to act in the future, due to debt servicing of the Treasury. The Fed and the Treasury are stuck between a rock and a hard place.
The Treasury must also avoid the notion that the Fed is acting to "extinguish" Treasury debt. This could also set off an "interest hike" reaction among foreign investors or even a run on the securities themselves. In order to accomplish this seemingly contradictory goal, the Treasury will reportedly adjust its security production while the Fed purchases securities. This is also a somewhat unprecedented occurrence. The idea is to get the world of investors to believe that while the Fed is "creating" money, the Treasury is "uncreating" the same. All this is done to dismiss any notion that the US is skipping town on a 13 trillion dollar debt.
What is misunderstood is that this 13 trillion in light of notional security debt is a drop in the bucket. The crux of the matter is the untold hundreds of trillions of debt that has been created and shared by the financial industry through the two decade creation of derivatives based on debt obligations and protection of the same derivatives through the marvel of the credit default swap. The quantitative easing necessary to mitigate fiction based debt of this magnitude would probably require an apple to attain the inflationary price tag of around fifty dollars or so.
The real choice facing the government and the Fed is simple. These defaulting financial institutions that surround the center of money production in the US and the world for that matter need to be liquidated. The choice that needs to be made is between the people who create real value through productive activity and the parasitical sector that has "debited" the value of that activity to such a degree that the debt is not payable. They literally owe each other the notes, at least the notes they didn't lose or destroy and they don't have the currency, nor does the currency exist in amounts necessary to pay off the bills.
So, we are faced not with immediate bankruptcy, but a choice of what debts to call in and what debts to maintain. To this point, the choice has been to maintain the very debts that should have been called in through bailouts, cover-ups and fictional accounting. While we have no indication this pattern will change, at some point there will no longer be a choice. Governments, especially the US government, and the Fed will eventually have to preserve what is functional and eliminate that which serves no purpose other than debt profiting. The real question is which classification the US dollar fits under.
Did you like this article? If you did, Thumb It! 0
thumbs so far
The views expressed
in this article are those of Gene DeNardo only and
do not represent the views of Nolan Chart, LLC or its affiliates.
Gene DeNardo is solely responsible for the contents
of this article and is not an employee or otherwise affiliated
with Nolan Chart, LLC in his/her role as a columnist.
