The Federal Reserve is Bankrupt

[loosecannon]

I meant that figuratively, altho it may very well be true literally if not formally in the not distant future.

First off the Federal Reserve is the singular agency "within" the US government (they are actually owned by and pay dividends to 1700 member banks and are nearly autonomous beyond the pres appointing their chairman) tasked with the job of managing the economy.

Tasked with maintaining constant growth sans excesses in inflation and sans any deflation whatsoever.

The Fed assumes this task primarily because it gives them the power to target interest rates which serves nobody more than it does their own stockholder constituents, the banks. Predictable, very predictable interest rates enable banks to make money by slicing margins as thin as a razor if need be to still reap dividends. Wild and crazy interest rates inhibit lending and opportunities for bank profiteering. The Fed being owned by, and serving the banks primary need as a core part of it's mission statement is the proverbial adage of the fox guarding the hen house as much as any thing ever as.

But back on topic. The Fed is out of ammo. They are powerless to do the task of which they were created to attend:

But there is a growing fear within and outside the central bank about whether the risks of such purchases outweigh the benefits. One concern is that it may take an ever larger amount of bond buying to get the same effect.

"If it's buying Treasuries, which is what the Fed is talking about lately, I think it has low returns period, and maybe diminishing returns to scale," said Alan Blinder, Princeton economist and former Fed vice chair, on the sidelines of the Fed symposium.

That's partly because most of the impact of Fed easing, especially that which is accomplished through unorthodox means, comes from the "announcement effect" on market expectations, rather than the purchases of securities themselves.

In an example of just how meek the effects of unconventional policy might be, Larry Meyer, a former Fed governor now with Macroeconomic Advisers, once estimated that $100 billion in Treasury purchases might lead only to a 0.10 percentage point drop in long-term interest rates.

Analysis: The uncomfortable mathematics of monetary policy | Reuters

I would post much more of the article if I could, but board rules prohibit it:

Ok, I will post this quote as well:

The figures bandied about are eye-popping. When the Fed first embarked on its policy of asset purchases, known as quantitative easing, Goldman Sachs economists estimated Fed credit to the banking system might have to expand to as much as $4 trillion to $5 trillion in order to grapple with the scope of the financial crisis.....

Instead, the Fed, in addition to slashing official borrowing costs to effectively zero, bought over $1.5 trillion in Treasury and mortgage bonds, bringing its balance sheet to a still-lofty $2.3 trillion from pre-crisis levels around $850 billion. Back then, this tack was widely seen by investors as the Fed pulling out the big guns.

The article goes on to point out that altho the Fed COULD do a lot more they won't and it wouldn't do much good if they did.

The reason why is because all the fed can do is influence how much money people and corps borrow. That's the whole scope of their management toolbox. Tinkering with the amount of credit issued. Tinkering with the amount of new debt created.

The system has failed. We need to divorce ourselves from an econ system that begins and ends with debt as the driver of the economy and fall head over heels in love with a new econ system that revolves around a durable currency that is not dependent on ever increasing debt, constant growth or the federal reserve running our economy on behalf of (and for the benefit of) 1700 of the nation's banks.

We need this because the Federal Reserve is out of ammo and can no longer address the real economic woes of our nation. The Fed saved the banks, but they can't save the rest of and the real economy.

they were never designed or intended to do so.

 

[marv]

Having worked for the Federal Reserve (Kansas City J branch from the late sixties to the early seventies) I should say this.

The purpose of the Federal Reserve, as originally constituted, was to regulate relations between federally and state chartered banks, and monitor non-chartered, or "street" banks. This included such mundane things like interest rates of overnight loans between banks to cover demand accounts.

The "Fed" does not print money! Only Congress can authorize the printing of specie or coinage. The Federal Reserve can only request amounts, based on the economy, to be placed in circulation. The Treasury Department disapproves the request, or approves it and passes it on to Congress.

The Federal Reserve does not buy or sell treasuries. The Treasury Department does that through the vehicle of the Federal Reserve.

The American economy is driven not by the Federal Reserve, but by the administration and the House of Representatives.

 

[loosecannon]

Reinhart's Seven More Years of High Unemployment Hit Fed Today

The nation has more than a 50 percent chance of experiencing a lost decade like Japan, when a collapse in land and stock-market prices gave way to economic stagnation and deflation starting in the 1990s, according to Reinhart. To avoid that outcome, policy makers should immediately announce a plan to increase taxes and cut spending in about a year, she said, adding her husband generally shares the same position.

Reinhart's Seven More Years of High Unemployment Hit Fed Today - Bloomberg

exceptional article. Reinhart is one of the few "respectable" economists who has a record of getting it right by studying the economy as it really is rather than as quantified data sets acting within formulaic structures.

 

[Jos]

The Federal Reserve does not buy or sell treasuries. The Treasury Department does that through the vehicle of the Federal Reserve.

QUOTE]

So the Federal Reserve buys US debt by way of the The Treasury Department it does that through the vehicle of the Federal Reserve.
But it's not the privately owned Federal reserve Bank thats buying or selling

 

[loosecannon]

The Federal Reserve does not buy or sell treasuries. The Treasury Department does that through the vehicle of the Federal Reserve.

QUOTE]

So the Federal Reserve buys US debt by way of the The Treasury Department it does that through the vehicle of the Federal Reserve.
But it's not the privately owned Federal reserve Bank thats buying or selling

Those were weasel words. Since the fed reserve act was passed in 1913 the fed takes the lead in instructing the treasury to issue currency or credit. The treasury follows the instructions of the fed and Congress does nothing having already approved the process with legislation nearly 100 years ago.

Meanwhile neither the treasury or the congress ever take any leading role in initiating the creation of new money or credit except via deficit spending legislation including the budget itself.

Pull a bill out of your wallet and read the top printed line.

Seriously, do it, right now.

 

[loosecannon]

Federal Reserve Note
From Wikipedia, the free encyclopedia
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"FRN" redirects here. For other uses, see FRN (disambiguation).
Various Federal Reserve Notes, c.1995. Only the designs of the $1 and $2 (the latter not pictured) are still in print.

A Federal Reserve Note is a type of banknote. Federal Reserve Notes are printed by the United States Bureau of Engraving and Printing on paper made by Crane & Co. of Dalton, Massachusetts. They are the only type of U.S. banknote that is still produced today[1] and they should not be confused with Federal Reserve Bank Notes.

Federal Reserve Notes "are authorized" by Section 411 of Title 12 of the United States Code.[2] They are issued to the Federal Reserve Banks "at the discretion of the Board of Governors of the Federal Reserve System".[2] The notes are then issued into circulation by the Federal Reserve Banks.[3] When the notes are issued into circulation they become liabilities of the Federal Reserve Banks[4] and "obligations of the United States".[2]

Federal Reserve Notes are fiat currency, with the words "this note is legal tender for all debts, public and private" printed on each note. (See generally 31 U.S.C. § 5103.) They have replaced United States Notes, which were once issued by the Treasury Department.

Federal Reserve Note - Wikipedia, the free encyclopedia