More Fed Reserve Notes Intended for Wall Street

After the helicopter drop of stimulus checks for Americans on Main Street over the summer, Ben Bernanke's money printing armada will point the flow of ever more Federal Reserve Notes ((FRNs)) towards Wall Street, at least based on his testimony to Congress Monday.

It is actually quite shocking to see the one-trick pony theory proven, as all the Fed can - and certainly will - do is create more debt.

Here's an excerpt from the testimony:

In collaboration with governments and central banks in other countries, the Treasury and the Federal Reserve have taken a range of actions to ameliorate these financial problems. To address ongoing pressures in interbank funding markets, the Federal Reserve significantly increased the quantity of term funds it auctions to banks and accommodated heightened demands for funding from banks and primary dealers.

We have also greatly expanded our currency swap lines with foreign central banks. These swap lines allow the cooperating central banks to supply dollar liquidity in their own jurisdictions, helping to reduce strains in global money markets and, in turn, in our own markets.

To address illiquidity and impaired functioning in the market for commercial paper, the Treasury implemented a temporary guarantee program for balances held in money market mutual funds, helping to stem the outflows from these funds. The Federal Reserve put in place a temporary lending facility that provides financing for banks to purchase high-quality asset-backed commercial paper from money market funds, thus providing some relief for money market funds that have needed to sell their holdings to meet redemptions.

Moreover, we soon will be implementing a new Commercial Paper Funding Facility that will provide a backstop to commercial paper markets by purchasing highly rated commercial paper from issuers at a term of three months.

Bernanke did not say anything really new. The Fed's decision to officially print unlimited of FRNs happened a week ago and markets are still begging for more "liquidity." It is quite disturbing to see it proven again that all the Fed can do is to offer more of its only product, i.e. fresh debt.

It is doing so at record rates, reports the Mogambo Guru:

...here in America, we destroy our money by creating more and more of it, which I measure with Total Fed Credit, which is the magical stuff that appears in the banks as an increase in credit available for lending.

And not only lending, but lending as a huge multiple of the increase in TFC, which went up by a staggering US$103.6 billion last week!

This is So Freaking Bizarre (SFB) that I slobber down my own chin when I say it exceeds the staggering irresponsibility of the days of Alan Greenspan since 1997 when he was driving the Federal Reserve over the dead, dying body of the dollar by increasing Total Fed Credit by $10 billion a month, which was enough to produce the current terrifying bubbles in stocks, bonds, housing, derivatives and growth of government!

Now, if $10 billion a month of new money and credit is enough to create all of that inflationary horror, then what in the hell is $103.6 billion in One Freaking Week (OFW) going to do? Gaaaaaah!

I find no consolation in the fact that the ECB conducted a €310 billion repo last week, outnumbering the Fed on the daily race into monetary inflation as never seen before in the past 35 years.

Is the Fed Only Buying Time Until After the Election?

One gets the impression that the Fed and especially Treasury Secretary Henry Paulson are not really interested in finding a solution to the gordian financial knot that threatens the global economy. As Paulson has already made clear that he won't be part of the next government, it may be tempting to leave the mess to a Democratic president. President Bush, probably having a hard time grasping all these problems erupting on Wall Street will also be more than happy to hang it all on the shoulders of his successor, no matter whether it will be Obama or McCain.

This may bring the current FRN strength to an end in November, once the realization sets in that the US is the world's biggest debtor and may only be able to repay its obligations after a good dose of hyper-inflation. Then FRNs will be no exemption from the rule that all unbacked fiat currencies have ultimately returned to their intrinsic value.

Should McCain end up in the driver's seat, it could be a quick ride.

David Shvartsman has more analysis on Bernanke with a funny conclusion.

Comments

[SW Richmond:]

The "unlimited funding" announcement hit me too with a blast of disbelief. And USDX was up 1.334 point TODAY. I guess our fiat doesn't suck as bad as their fiat, eh?

Weeks ago I ran out of adjectives to describe what I was seeing. Now I just watch in amazement the death throes of the world's economic system. Can war be far behind?

2008 Oct 21 06:45 PM

[PainfullyAware:]

Absolutely they are attempting to forestall the collapse until after the election is over.

It seems that they understand how to destroy most of the world currencies so that there will be fertile ground for a common currency and World Banking Organization. China was the first to mention it, Italy chimed in shortly after. Now it seems that the political community is leaning that way.

I wish I could still consider the Crazies Crazy.

2008 Oct 22 01:56 PM

[derryl:]

PainfullyAware:
Whether it is by design or just the natural course of things, I think you are right about a further concentration of monetary control as the institution of "banking" evolves.

First the US and Canada passed our Bank Acts in 1913 (UK 1914) formally authorizing private banks to create, issue and manage financial credit denominated in the national currency (US or Canadian dollars, pounds, francs, etc.). England has had a central bank since 1694 but the 20th century saw all major economies create their own central banks as "lender of last resort".

Of course the real worth of American dollars resides ultimately in the real economic value of the American economy, not in the bank notes issues by the Fed, so central banking tends to "abstract" money from its true source of value and kind of lets money take on a life of its own.

At first States and populists resisted centralization of banking, but the 1930s monetary troubles destroyed political resistance to expanded Fed powers. Since WWII the G 10 (11 if you include Switzerland) of central bankers arose and now they meet regularly in Basle to harmonize world monetary policies.

With the current financial troubles it looks like control of money is taking another step away from private banking enterprises and governments and into the hands of central bankers. Unlike political leaders who at least supposedly speak for their country's people, central bankers speak for their country's money. And the interests of money do not always agree with the interests of us people who just want to be able to use stable-value money to get on with our economic lives.

If energy is the "material" lifeblood of a modern economy, money is the "immaterial" lifeblood. Shut off the flows of energy or money and your economy is shut down.

Money is an abstract concept that is growing more abstract as it evolves. The more abstract, the more removed from physical reality, the harder a thing is to understand. Wall St was selling "financial instruments" that nobody understood. But "money" itself is such an abstract concept that nobody understands it.

We absolutely need money to make our economies work, and we absolutely need bankers to create and administer money. Otherwise we're back to barter. Goodbye computers, hello chiselling letters in rocks.

We understand energy. We have good scientific theories about how energy works. Because we understand energy we are able to control it. But we have no good theories about what money is and how it works. If we don't understand energy it can blow up in our face, just like money does with these periodic meltdowns or crashes. We're always getting surprised by the behavior of money, and that's because if anyone knows how money works they're keeping it to themselves.

If the central bankers who are moving us towards monetary globalization know enough about money that they can prevent it from blowing up in our faces, then I'd like to see them present a theory of money--not incomprehensible and incoherent bafflegab but a real theory that can answer real questions about money supply, interest, who "owns" money, etc.--to demonstrate that centralizing control will serve our economic interest and is not just a power grab.

2008 Oct 22 10:05 PM

[alajac:]

derryl,
First thing to figure out is "what is a government?"

"Government is any entity that claims natural resources and turns them into 'property' by allocating their use and by being willing and able to defend that claim". Whether one guy on the Moon or the Galactic Federation, that definition covers it.

What it also says is that governments own all the natural resources (including humans and sub-governments) within their 'realm of protection'; if you can't defend your claimed resources from ANY foreign invasion, then you don't really own them.

Governments create a tool (called 'money') in order to facilitate exchange. That's all it is. Anybody who wants to argue that "only central banks can create money" is obviously on the payroll of a central banker or a fore-runner of same (as were most of the signers of the US Constitution). I have a plan to fix the economy. Just look at my various SA comments for more info or email alan_jacquemotte@yahoo...

2008 Oct 23 02:08 PM

[johngonole:]

Governments are what create markets. Markets have rules. No stealing, contracts, property rights, etc... Land boudaries, etc...

I think everyone understands that governments created the rules by which a society governs themselves. The less capable a people are go doing this the more rules they need.

The next argument is whether socialism, fascism, or truly free markets are better. Free markets are superior. The problem is that we have a monopoly on the primary medium of exhange the dollar. Hell I'd go back to bartering if it meant better price stability.

2008 Oct 24 03:37 AM