The Fed Money Machine Gears Up to Print Trillions

Includes: AIG, DBV, UDN, UUP
by: The Prudent Investor

In its effort to alleviate the credit crunch, the Fed yesterday unloaded a few more $100 billion on money markets and therefore ultimately on the tax bills of generations to come.

At 6 AM local time Monday, the Fed came out with a statement on a restructuring of AIG's debt that will inject $40 billion in share capital. The sweet deal for AIG is the rate curve from Libor + 800 basis points to Libor + 300 basis points. Altogether the help was almost doubled to $150 billion. As the government is determined to keep AIG afloat, the Fed will still make good money on it.

New money, money, money was the directive for the whole morning. At 10 AM the Fed money machine revved up. Looking forward to the new year, the Fed will offer $150 in a 17-day repo that matures on January 8. 2009 and sports a minimum bid 0.528%. If one could only get that rate on credit cards.

It's a MMIFF Costing $600 Billion as of Now

The Fed NY meanhwhile updated its information on the Money Market Investor Funding Facility (MMIFF). This new facility - that consists as all other liquidity facilities of nothing but new debt - has a current volume of $600 billion and I consider it a safe bet that we will see a trillion or more to come here soon as well.

After all, there appears to be no other strategy than to give away close to free, so long as you are a bank, GSE, or any other entity that has a good lobbyist at the Treasury. With Hank Paulson basically running the show by himself, chairman Ben Bernanke is degraded to an engineer who has to tune up the printing presses for the next couple of trillions we will see in the next few months alone.

Bloomberg Presses Fed for More Transparency

Information provider Bloomberg, the only critical force among the major newswires, presses ahead in its crusade for more transparency at the Fed. Quoting several protagonists, Bloomberg did not miss out on the fact that Treasury Secretary Paulson said only 2 months earlier he too wanted more transparency. Check out the right sidebar of the link below for proof on video. Bernanke had pledged for more transparency on September 24, another video shows.

Here is the full article.

When Will the $ Default?

Seeing that all dams have broken and the Fed is creating more money in a month than it did before in several years, I am left with no other conclusion that Federal Reserve Notes - backed by nothing - will default in the future. The $100 trillion question is only when, not if.