The Federal Reserve Needs More Money (?)


Chicago Fed's Money Museum


Right, right, it's a "facility" not a "heist" or "cry for deposits" (James Turk in The Federal Reserve Needs More Money):

The Federal Reserve needs more money to continue purchasing US government debt, the aggregate amount of which is soaring because of ballooning deficits. But the Fed has a problem.

The US government doesn’t pay its bills with ‘cash currency’, the green paper Americans carry around in their pocket. So the Fed cannot crank up the printing press like central banks did in Weimar Germany in the 1920s, or in recent years, in Zimbabwe.

The US government needs ‘deposit currency’ – or ‘electronic’ currency, to put it into Mr. Bernanke’s terms – so that it can pay its bills by check or wire transfer. Payment for goods and services by deposit currency are made through the banking system, and nearly all commerce in the United States is conducted in this way. So where will the Federal Reserve get enough deposit currency to enable it to continue purchasing US government debt?

I noted in my recent article that explained the cause of hyperinflation that “huge bank excess reserves…have funded the Fed’s purchase of US government debt, putting…the US dollar on the road to hyperinflation.” But these huge reserves are not providing enough deposit currency, given the massive, ongoing deficits being racked-up by the US government. In short, the Federal Reserve needs more money.

So the Federal Reserve is proposing a regulatory change that would allow banks to deposit money with it and earn interest income on those deposits. These deposits will be separate and distinct from the reserves that banks leave at the Fed. They would be time deposits, in contrast to the overnight tenor of reserves, and therefore would earn the banks a higher rate of interest. Even their name is different. They are not reserves, but a “term deposit facility”.

It has been evident for some time that the Fed would require new gimmicks to come up with the deposit currency it needs to fund its growing purchases of US government paper. This point is neatly captured by Reuters announcing this new Fed facility: “At the height of last year’s financial meltdown, the Fed had been discussing going to Congress to request the authority to issue its own bills. The term deposit facility achieves a similar purpose, but can be undertaken within the Fed’s existing authority and does not require congressional approval.”

Side-stepping congressional authority like this is further evidence that the Federal Reserve sees itself as unaccountable to the general public – as if not identifying who received the Federal bailout money was not enough proof of this point already. But the Fed’s devious maneuver here illustrates something much more important, namely, the reason the Federal Reserve exists.

See, I thought it was actually supposed to be their way out, not one more way for them to try and keep things afloat in ways that they aren't authorized to. If this is the case, it makes sense that they would deny this "facility" having any negligible impact on monetary policy.

Again, it goes back to the Fed being the Treasury's bitch, Congress not knowing what the hell is supposed to be done and "whatever it takes".

Ironically, JDA has her money on someone from within the Fed figuring out what needs to be done to A) get them right with Congress again and B) steer them out of this bullshit in one piece. I won't name names but I think if you were the betting sort and paid attention, you'd know who I think has the largest chance at success.

Or we could just dismantle the Fed and start from scratch. Whatever. I'm cool with either, I don't have much to do right now.

I recommend the article in its entirety. Why now does Zimbabwe Ben realize he can't indefinitely print money? And is the Fed finally ready to take its balls back from the Treasury? It absolutely makes sense and I would love to see the Fed acknowledge any of these concerns. It won't and will continue to smudge the details of its precarious situation.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.

2 comments:

W.C. Varones said...

I don't get this argument at all.

The Fed instantly creates whatever money it needs whenever it wants. They don't need deposits.

I didn't really get it either. But think about it. what if - IF - Ben Bernanke realizes they can't fucking print money indefinitely. What if he's like "I have a really good idea to get dollars" because maybe there really IS a currency crisis like they say there is. And so he and his crack team of Fed rocket scientists come up with this stupid ass plan and paint it as an "exit strategy".

I don't know. WTF? this is bizarre! Seriously??

I know who I want to weigh in on this but he's not talking so... no clue, homie. It's these fuckers saying it, not me. hopefully that person at least reads this and emails me, I'm fucking fully baffled on it.

AG