Is The Fed Monetizing the Debt? According To The Fed They Are

While pundits, economists and Fedbashers waste quality air arguing over the specifics, the reality remains that those Fed brainiacs are out of moves and doing exactly what Dallas Fed President Richard Fisher said they wouldn't: serving as handmaiden to the Treasury. "Handmaiden" is a kind word, I would have used "bitch" or "cumdumpster" myself but that's just me.

See "Monetizing the Debt" via the St Louis Fed circa 1984 for clarification on what exactly monetization is. This should make the goal of the Federal Reserve's latest $600 billion Treasury purchase program all too clear in case anyone is a little sketchy on the details.

In large measure, the phrase “monetizing the debt” grew out of the experience of the Federal Reserve immediately after World War II. At the time, the Federal Reserve had a tacit commitment to the U.S. Treasury to stabilize the Treasury’s cost of financing the war debt. After the war, individuals began liquidating their holdings of Liberty Bonds. Because of its agreement with the Treasury, the Federal Reserve purchased substantial amounts of government debt.

These purchases increased the reserves of the banking system and, consequently, the money stock; the Federal Reserve was said to have monetized the debt. In March 1951, the Federal Reserve and the Treasury reached an accord whereby the Federal Reserve established its independence. Since then, the Federal Reserve has been free to pursue its policy objectives independent of the debt financing needs of the Treasury.

We won't argue the point of Fed independence now, been there done that and not much has changed, it's still just a clever ruse that keeps them safely insulated from the curious eye of the unwashed masses while they do whatever the fuck they want.

In July of 2009, Ben Bernanke looked the House of Representatives in the eye and said the Federal Reserve will not monetize the debt. Peep:

Fantastic, Zimbabwe Ben, but isn't that exactly what you are doing now per your own fellow Fed asshat's definition above?

In his June 2009 testimony, Bernanke used the all-too-endearing term "we" as if his Fed and the American people are one in the same. Cute, isn't it?

The increases in spending and reductions in taxes associated with the fiscal package and the financial stabilization program, along with the losses in revenues and increases in income-support payments associated with the weak economy, will widen the federal budget deficit substantially this year. The Administration recently submitted a proposed budget that projects the federal deficit to reach about $1.8 trillion this fiscal year before declining to $1.3 trillion in 2010 and roughly $900 billion in 2011. As a consequence of this elevated level of borrowing, the ratio of federal debt held by the public to nominal GDP is likely to move up from about 40 percent before the onset of the financial crisis to about 70 percent in 2011. These developments would leave the debt-to-GDP ratio at its highest level since the early 1950s, the years following the massive debt buildup during World War II.

Certainly, our economy and financial markets face extraordinary near-term challenges, and strong and timely actions to respond to those challenges are necessary and appropriate. Nevertheless, even as we take steps to address the recession and threats to financial stability, maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance. Prompt attention to questions of fiscal sustainability is particularly critical because of the coming budgetary and economic challenges associated with the retirement of the baby-boom generation and continued increases in medical costs. The recent projections from the Social Security and Medicare trustees show that, in the absence of programmatic changes, Social Security and Medicare outlays will together increase from about 8-1/2 percent of GDP today to 10 percent by 2020 and 12-1/2 percent by 2030. With the ratio of debt to GDP already elevated, we will not be able to continue borrowing indefinitely to meet these demands.

So though he very clearly warned against borrowing indefinitely to meet those demands, he and his Fed seemed all too willing to do the loaning should the Treasury need to come up with operating cash.

And that's not monetization? My ass. Or Bernanke's ass. Whatever.

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.


elf2006real said...

"..politics is like vivisection—disturbing as a career, alarming as a hobby"