I had a moment so I sent The Federal Reserve an email, see following:

Please begin to raise interest rates, you are loaning money under inflation levels. The average working class person is getting crushed in middle America. Interest rates are not lower and as more people tap out credit cards, the wave of defaults will become larger and larger. This sets the stage for higher consumer interest rates whether or not “The Fed” rates are low. Right now, you are paying banks to take your money. We have tried the low interest rate float and it is failing. We need to go to plan B which is crush inflation, thank you.

Here is their response.

Thank you for your most recent correspondence concerning the effects of the federal funds rate on consumers and you asked the Federal Reserve to raise the current level of interest rates.

By targeting the federal funds rate, the Federal Open Market Committee (FOMC) seeks to provide the monetary stimulus required to foster a healthy economy. A lower federal funds rate increases the amount of money and credit banks have on hand and ultimately affects other interest rates and the performance of the economy. It is important to recognize that the rates that actually prevail are determined by a number of forces, and not by Federal Reserve actions alone. The Federal Reserve has considerable influence over some short-term interest rates, such as the federal funds rate. But the Federal Reserve has less control over other short-term rates, and long-term rates often do not respond at all to Federal Reserve’s actions or respond with considerable delay. Mortgage rates also are affected by the economic factors that affect most other long- term rates. Mortgage rates, however, sometimes rise or fall more than other long-term rates because of the additional investment risks to lenders who make mortgage loans. For example, a portion of the additional cost of mortgage credit compensates lenders for the risk of default, while another portion compensates lenders for the option that homeowners have to refinance their mortgages when interest rates decline.

Please know that the Federal Reserve’s monetary policy actions are not aimed at influencing or correcting any particular market or segment of the population. The goal of monetary policy is to foster conditions conducive to sustaining sound, noninflationary economic growth over time, and policymakers must make decisions that provide the greatest benefit to the economy overall.

Again, thank you for writing.

Sincerely,

JPD
Board Staff

I will give them credit, their money is worthless but they do have excellent customer service. I like the part where they say that policy is not aimed at a particular segment of the market or population. This one has a long way to go before it gets ugly.

Blissex: in answer to your question the Fed spells out what they mean by securities in the text under the chart.

“For many years prior to the most recent turmoil that has occurred in financial markets, the bulk of the Federal Reserve’s assets were in the form of its holdings of US Treasury securities. Nearly 90% on average of its assets were of this type. Other major asset categories included Treasury currency and the gold stock.

So until a year ago the great bulk of Fed assetts were T-bills, with cash and gold also playing a small role.

Now? It’s a alphabet soup of things that are all basically junk bonds when you get down to it.

When I first had the origin of US money explained to me I was told: all US money is created as debt. Now I think we can say “much US money is created as bad debt”.

Side question: what are securities?

Also, Barry, you are more correct than you know in speaking of chartporn: Who drew this chart cutting off the bottom at $450 billion? That is a distortion of the decline in the number of securities. Wasn’t that covered in the book “How to Lie With Statistics” ?

The Fed can do any Ponzi scheme it wants, that’s essentially its role. Where do you think “liquidity” comes from?

The problem with fractional reserve “money” etc. is not that it is a Ponzi scheme, as the goldbugs say, it when the Ponzi scheme becomes faster than it should be.

The Fed is currently in the role of preventing bank insolvencies by swapping insolvent debt with solvent instruments (insolvent debt is of course illiquid, so talking of a “liquidity problem” is just a euphemism).

The Fed is also trying to help banks generate enormous carry trade profits to rebuild their balance sheets by supplying them with negative real rate money.

Both are excessive Ponzi schemes used because the alternative is to recapitalize the banks and to buy their insolvent debts via the Tresury, and that would look a bit too like nationalization and would lead to calls for sacking the corrupt management of those banks.

Instead by doing essentially the same via the Fed the management can continue to manage to pay themselves and their political tools very well, and the fiction that there is private capital at risk in the big banks maintained.

Hell, we’ve gotten so sophisticated that we can even call debt money. How do you like that, sports fans? IOU becomes M-O-N-E-Y. Hooboy! What a genius musta thought that up.

Now that we really, really need ‘em, where have all the geniuses gone?

http://blogs.wsj.com/economics/2008/04/09/benefits-of-the-fed-doing-reverse-mbs-swaps/?mod=WSJBlog

If its truly how the Fed is growing its balance sheet (swapping MBS w/ its seal of approval back for treasuries, then pumping the treasuries back out for more MBS), then the Fed is essentially creating a ponzi scheme.

What does off-balance sheet mean? Sounds like cooking the books. I mean come on. If I kept stuff off the balance sheet wouldn’t I go to jail?

I’m confused.