The Fed Continues Its Mass Money Laundering Operation
The Federal Reserve is in talks with money market mutual funds about possible transactions to help the central bank drain up to $1 trillion from the markets when it decides to tighten monetary policy in the future, Bloomberg News reported on Thursday. The story cited a person familiar with the discussions. The Fed will need to sell huge amounts of Treasurys when the time comes to change rate policy, and it wants to be sure enough buyers are lined up, in addition to existing primary dealers, who are already required to participate in the Fed's open market operations. Fed Chairman Bernanke addressed the issue in prepared testimony released on Wednesday. In that testimony, he said, "To further increase its capacity to drain reserves through reverse repos, the Federal Reserve is also in the process of expanding the set of counterparties with which it can transact and developing the infrastructure necessary to use its MBS holdings as collateral in these transactions."
What's funny about this is that Bernanke already announced his intention to use money market funds as a whore for his sick twisted exit strategy scheme yesterday so perhaps he should have gotten their permission before he promised they'd be taking care of the plan on his behalf. Ooopsie.
Blah blah blah, they've been batting this one around for months.
Reuters (September 24 2009):
The U.S. Federal Reserve is studying the idea of borrowing from money market mutual funds as part of eventual steps to withdraw stimulus, the Financial Times reported on Thursday.
The Fed would borrow from the funds via reverse repurchase agreements involving some of the huge portfolio of mortgage-backed securities and U.S. Treasuries that it acquired as it fought the financial crisis, the newspaper reported, without citing any sources.
This would drain liquidity from the financial system, helping to avoid a burst of inflation as the economy recovered.
The FT said Fed officials had in recent days held discussions with market participants on how it might implement such a scheme.
The Fed is considering whether to conduct a pilot scheme, but worries such a test might be seen as a signal that the central bank was about to drain liquidity on a large scale, the newspaper said. In the near term, a big drain remains unlikely, it added.
In order to drain liquidity, it needs to launder more money. Makes sense to me (!) but I also hung out behind the school building with the rest of the asshats with mohawks in my younger days and may have inhaled a few too many chemicals at that time.