Fed To Issue F-Bills
Today’s WTF meme of the day is this WSJ article, Fed Weighs Debt Sales of Its Own:
The Federal Reserve is considering issuing its own debt for the first time, a move that would give the central bank additional flexibility as it tries to stabilize rocky financial markets.
Government debt issuance is largely the province of the Treasury Department, and the Fed already can print as much money as it wants. But as the credit crisis drags on and the economy suffers from recession, Fed officials are looking broadly for new financial tools.
Fed officials have approached Congress about the concept, which could include issuing bills or some other form of debt, according to people familiar with the matter.
It isn’t known whether these preliminary discussions will result in a formal proposal or Fed action. One hurdle: The Federal Reserve Act doesn’t explicitly permit the Fed to issue notes beyond currency.
Just exploring the idea underscores many challenges the ongoing problems are creating for the Fed, as well as the lengths to which the central bank is going to come up with new ideas.
There are going to be screams about this.
The Fed’s balance sheet is a shambles, blasting from 900 billion to more than $2 trillion since August alone.
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Source:
Fed Weighs Debt Sales of Its Own
Move Presents Challenges: ‘Very Close Cousins to Existing Treasury Bills’
JON HILSENRATH and DAMIAN PALETTA
WSJ, DECEMBER 10, 2008
http://online.wsj.com/article/SB122888021757894023.html
December 10th, 2008 at 8:52 am
The response to F-bills should be obvious….. F-U Bernanke.
This is all beginning to get a bit South American, isn’t it?
December 10th, 2008 at 8:56 am
Can we please have a Republic? Please?
December 10th, 2008 at 8:58 am
Ok thats it. I’ve got the greatest idea for a hedge fund ever. I am calling it “The Mattress Fund”
Annual fees: 2 and 0 (Much cheaper than 2 and 20!)
You give me your money. I will store a large portion of it under my mattress (thats right, it has at least a 1 bp advantage over short term treasuries).
The remaining portion of your funds will be used to buy a rifle.
Now you may wonder, “is your mattress secure?”
Thats a great question. Thats why I own the rifle. Anyone trying to cause a liquidity crisis will be shot. Any personal belongings of the would-be robber will be added to the assets of the fund. I am expecting some gold rings and such. As we all know gold is a great currency hedge.
Lastly if times get rough, and its worth the bullet, the rifle will be used to pick off local wildlife. Squirrels are too small but I hear raccoon tastes just like chicken. I will sell “chicken” sandwiches at the going rate and collect on the arbitrage.
Who wants to partner with me or invest in my fund? I can have the delaware charter drawn up in no time.
December 10th, 2008 at 9:05 am
I don’t know how many geniuses in the media, I have heard say that housing prices need to be supported. Finally one that believes as I do: http://rismedia.com/wp/2008-12-03/house-prices-must-return-to-trend-levels-to-stabilize-market/
December 10th, 2008 at 9:07 am
Doesn’t all this printing lead to higher commodities pricing ? Oil and gold popped on this bit of news.
Just thinkin’.
December 10th, 2008 at 9:09 am
I want to apply to be the branch manager in Iowa. We have plenty of deer, raccoon and lots of guns.
December 10th, 2008 at 9:12 am
Interesting. Since we know Government will be paying for Boomers’ retirements, I wonder if they’ll finance part of it by using that debt to prop up equity markets!
December 10th, 2008 at 9:27 am
Whatever happened to checks and balances? If Congress did what they are supposed to do, they would fight off the power grab of the Treasury Secretary and Fed. I’m afraid most of them don’t have the first clue as to what is going on let alone have the interest to fight. What’s the point of having a Federal Reserve Charter if they can just do whatever they want on whim? I don’t think it says anywhere in their charter that they can issue debt. Wouldn’t Congress have to approve? I am probably just too old fashion – the way things work nowadays is you grab for power and then justify it later and not the other way around.
December 10th, 2008 at 9:29 am
Is this the final straw that makes gold go parabolic?
December 10th, 2008 at 9:42 am
maybe know People will have an open ear to the Fact that the “U$D 700 bn ‘Bailout” was, actually, “The Banker Take-over Bill”.
December 10th, 2008 at 9:44 am
I think these are commonly referred to as “F-bombs”…
December 10th, 2008 at 9:53 am
As was pointed out, the Federal Reserve can already print money. The real WTF to this is how printing money is different than issuing debt.
Zero interest rates now foretell hyperinflation later. If there are so many dollars with nowhere to go that yields get bid to zero, the last thing the fed needs to do is print more. Watch for negative nominal yields on the secondary markets for treasuries. With real prices/values dropping like a rock, yet still too much money being printed, real yields have to go negative. All inflationary episodes result in real yields becoming negative. And too much money, even in a downward deflationary (real values/prices) spiral, yields inflation.
Things just get curiouser and curiouser.
December 10th, 2008 at 10:34 am
And by the way who owns the fed equity shares anyway?
December 10th, 2008 at 10:54 am
Well, this certainly validates another of Mish’s more extreme perspectives — the Fed power grab.
Actually, all in all, it is clear we are seeing a massive power grab by executive office agencies. Why exactly congress has refused to reign in the executive over the last 8 years is a bit of a mystery. My personal best guess is that they are all receiving funding from the same source: Wall St.
The impression created by this move is further balkanization of the US government, and of continued hodge podge, poorly thought through responses to the financial situation. All the actors are in it for themselves, or their organization, and don’t much care about anything beyond that.
Of course, all of this is making Neal Stephenson look as prophetic as he is funny.
December 10th, 2008 at 10:54 am
@curmudgeon – the fed can just mop up the additional liquidity. the dragon to be slayed is deflation. it’s much tougher to cure.
December 10th, 2008 at 11:00 am
What you guys call deflation, I call correcting back to fair market value! Don’t fucking kid yourself! This will pass just like everything else does! Our Government is a joke, the basis of it is getting twisted everyday.
December 10th, 2008 at 11:06 am
Suntrust already going back to the well again for its second round of TARP money, lol. Shorted more this morning.
December 10th, 2008 at 11:23 am
@Trickstar: And to think, they haven’t even begun to bail out commercial real estate, which is the next thing to blow in ‘09. They are going to fail at slaying deflation and will waste untold trillions of dollars we don’t have doing it. Fabulous.
December 10th, 2008 at 11:25 am
VoiceFTW:
with this: “Why exactly congress has refused to reign in the executive…”
A good Q, no doubt, though “reign”, should be “rein”.
http://www.thefreedictionary.com/rein
http://www.thefreedictionary.com/reign
just to be helpful..
~~
TrickStar Says:
December 10th, 2008 at 10:54 am
@curmudgeon – the fed can just mop up the additional liquidity.
TS,
they only sure way they can do that is by DK’ing the banks claim on deposited ‘Reserves’–is that what you’re implying?
December 10th, 2008 at 11:31 am
I misread the title as “Fed To Issue F-Bombs”
December 10th, 2008 at 11:34 am
@danm Says: December 10th, 2008 at 9:12 am
Interesting. Since we know Government will be paying for Boomers’ retirements,
Really Danm? Ever see the movie Logan’s Run? Prepare for the advent of boomer euthanasia
December 10th, 2008 at 12:20 pm
Smells a lot like like desperation.
Treasury out of bullets? A big F you from China? T-Bills lost their luster? (neg yields not helping there I suppose).
The Fed issuing debt without Congressional oversight or limits would be final straw. January can’t some soon enoguh.
December 10th, 2008 at 12:49 pm
DavidB Says:
December 10th, 2008 at 11:34 am
>Prepare for the advent of boomer euthanasia
Aaaaah yes, back to the days of “benign neglect” only more so
December 10th, 2008 at 1:00 pm
Another issue for beyond the US shores is that the current US policies are making the US a safe haven for hot money.
Yet other countries, with the same policies and issues, are getting beaten up real bad. I am talking about my own poor UK here. Looks like we are headed to become Rekyavik on Thames in the New Year.
December 10th, 2008 at 1:04 pm
Does anyone have a chart/map of the different powers of the FED and Treasury? I still can’t help but see some conflict of interests for (Jaime) Diamond. How much are the equity holders in the FED making now? How can the FED be owned by private institutions? I have seen the FED charter but something just doesn’t feel right about it how it is all set up. A map showing all (at least some) of the relationships between private institutions, the FED, the treasury, and maybe even the t-bills that China has would really shed some light on all this. Thanks.
December 10th, 2008 at 1:12 pm
Looks like, at some point we go from a deflationary recession to an inflationary one.
December 10th, 2008 at 1:18 pm
@Mannwich – please don’t talk about the status of the commercial real estate sector…it scares me. Really. That is a freaky one. Thank goodness CRE firms don’t use leverage…
December 10th, 2008 at 1:19 pm
GDX is now up 75% from the October 23rd low.
December 10th, 2008 at 1:42 pm
@TrickStar: It should scare you. It’s going to be a massacre unless/until the Feds bail them out too (how many bailouts can they do before it all falls apart though?)…..
December 10th, 2008 at 1:49 pm
If the Fed begins to issue F-Bonds, be prepared for Treasury to begin paying BBB yields.
December 10th, 2008 at 1:53 pm
@ Mark – in the short-term, we’re fighting negative growth rates with injections of liquidity to increase lending and creditworthiness of borrowers. The financial crisis has created the need for the liquidity. Curmudgeon’s concern is that the medicine needed to get us through the short-term period of deflation would produce a period of inflation thereafter. My take is that if central banks prop up firms with capital, they can always require those same firms to use the proceeds to purchase SFPs. The bank has reduced its risk, presumably stimulating lending, without letting them lend the injected capital at a multiple of the “investment”, as they normally would.
December 10th, 2008 at 2:00 pm
@Mannwich – I hear ya. I do. Aren’t you shorting CREITs?
December 10th, 2008 at 3:29 pm
The Fed has unlimited ability to add to bank reserves, however, it needs things to sell in order to manage the level of those reserves. Historically, Treasuries have served that purpose, however, recent sales by the Treasury (this is functionally a reserve maintenence operation and not borrowing, per se) have been at intervals and small relative to the amount of new reserves that have been added in the past few months. (This is one reason why the Fed has not been able to maintain its target interest rate.)
If the Fed gets authorization to issue its own debt it’s only to provide more flexibility in the reserve management function.
While the public, lawmakers, the know-nothing media and some blogs complain about the growth in the size of the Fed’s balance sheet, there has been zero mention of the massive buying of foreign currencies by that the Fed has done over the past few months.
Foreign currency holdings of the Fed have gone from virtually zero three months ago, to above $600 billion and now comprise the single biggest asset on the Fed’s balance sheet.
Foreign currencies are non-convertible, so all the Fed has is a piece of paper. In constrast, most of the U.S. bank regulated assets that the Fed lent against to help domestic institutions are cash flow positive.
There should be huge public outcry over this, but there isn’t.
December 10th, 2008 at 3:44 pm
Is is possible that these postulated bonds are more about mopping up rather than increasing liquidity? If they were offered for public sale, they’d be purchased with those other Fed Bonds (which we call Federal Reserve Notes).
Of course, at this stage, I’d be surprised that the Fed would be worried about mopping up the liquidity (unless they know something we don’t know). I’d guess that these new F-Bonds would go to forced buyers (F’d Buyers?) who need to exchange something illiquid on their books (you name it) for something they can claim as an unimpaired asset or exchange for Federal Reserve notes.
…or am I off base?
Best,
IM
December 10th, 2008 at 4:26 pm
I prefer Soylent Green over Logan’s Run.
chuck
December 10th, 2008 at 4:44 pm
And now for a world government
By Gideon Rachman
Published: December 8 2008 19:13 | Last updated: December 8 2008 19:13
“I have never believed that there is a secret United Nations plot to take over the US. I have never seen black helicopters hovering in the sky above Montana. But, for the first time in my life, I think the formation of some sort of world government is plausible.
A “world government” would involve much more than co-operation between nations. It would be an entity with state-like characteristics, backed by a body of laws. The European Union has already set up a continental government for 27 countries, which could be a model. The EU has a supreme court, a currency, thousands of pages of law, a large civil service and the ability to deploy military force.
So could the European model go global? There are three reasons for thinking that it might.
First, it is increasingly clear that the most difficult issues facing national governments are international in nature: there is global warming, a global financial crisis and a “global war on terror”.
Second, it could be done. The transport and communications revolutions have shrunk the world so that, as Geoffrey Blainey, an eminent Australian historian, has written: “For the first time in human history, world government of some sort is now possible.” Mr Blainey foresees an attempt to form a world government at some point in the next two centuries, which is an unusually long time horizon for the average newspaper column.
But – the third point – a change in the political atmosphere suggests that “global governance” could come much sooner than that. The financial crisis and climate change are pushing national governments towards global solutions, even in countries such as China and the US that are traditionally fierce guardians of national sovereignty.
Barack Obama, America’s president-in-waiting, does not share the Bush administration’s disdain for international agreements and treaties. In his book, The Audacity of Hope, he argued that: “When the world’s sole superpower willingly restrains its power and abides by internationally agreed-upon standards of conduct, it sends a message that these are rules worth following.” The importance that Mr Obama attaches to the UN is shown by the fact that he has appointed Susan Rice, one of his closest aides, as America’s ambassador to the UN, and given her a seat in the cabinet.
A taste of the ideas doing the rounds in Obama circles is offered by a recent report from the Managing Global Insecurity project, whose small US advisory group includes John Podesta, the man heading Mr Obama’s transition team and Strobe Talbott, the president of the Brookings Institution, from which Ms Rice has just emerged.
The MGI report argues for the creation of a UN high commissioner for counter-terrorist activity, a legally binding climate-change agreement negotiated under the auspices of the UN and the creation of a 50,000-strong UN peacekeeping force. Once countries had pledged troops to this reserve army, the UN would have first call upon them.
These are the kind of ideas that get people reaching for their rifles in America’s talk-radio heartland. Aware of the political sensitivity of its ideas, the MGI report opts for soothing language. It emphasises the need for American leadership and uses the term, “responsible sovereignty” – when calling for international co-operation – rather than the more radical-sounding phrase favoured in Europe, “shared sovereignty”. It also talks about “global governance” rather than world government.
But some European thinkers think that they recognise what is going on. Jacques Attali, an adviser to President Nicolas Sarkozy of France, argues that: “Global governance is just a euphemism for global government.” As far as he is concerned, some form of global government cannot come too soon. Mr Attali believes that the “core of the international financial crisis is that we have global financial markets and no global rule of law”.
So, it seems, everything is in place. For the first time since homo sapiens began to doodle on cave walls, there is an argument, an opportunity and a means to make serious steps towards a world government.
But let us not get carried away. While it seems feasible that some sort of world government might emerge over the next century, any push for “global governance” in the here and now will be a painful, slow process.
There are good and bad reasons for this. The bad reason is a lack of will and determination on the part of national, political leaders who – while they might like to talk about “a planet in peril” – are ultimately still much more focused on their next election, at home.
But this “problem” also hints at a more welcome reason why making progress on global governance will be slow sledding. Even in the EU – the heartland of law-based international government – the idea remains unpopular. The EU has suffered a series of humiliating defeats in referendums, when plans for “ever closer union” have been referred to the voters. In general, the Union has progressed fastest when far-reaching deals have been agreed by technocrats and politicians – and then pushed through without direct reference to the voters. International governance tends to be effective, only when it is anti-democratic.
The world’s most pressing political problems may indeed be international in nature, but the average citizen’s political identity remains stubbornly local. Until somebody cracks this problem, that plan for world government may have to stay locked away in a safe at the UN.
gideon.rachman@ft.com
Post and read comments at Gideon Rachman’s blog
Copyright The Financial Times Limited 2008
ol’ Holmes, above, is the operational definition of ‘cut-out’
December 10th, 2008 at 5:13 pm
yes! thats what we’re missing…more debt
maybe the DMV can drop some bonds on us too, while we’re at it…
starting to dislike Schiff less and less with each of these headlines
TRB
December 10th, 2008 at 5:23 pm
@Trickstar: I’m building I’m my position in SRS on significant dips. If we rally hard between now and the end of the year (which is what I’m hoping happens), I will sell my longs and go mostly in SRS for ‘09 and wait for the deluge.
December 10th, 2008 at 6:36 pm
Theodore: Much of what the Fed has done throughout its history, particularly its recent history, it has absolutely no authorization whatsoever to do. It just does it.
This is just another example.
December 10th, 2008 at 6:53 pm
DL Says: @ December 10th, 2008 at 1:12 pm
I made that observation here several months ago. I saw the forest through the trees. What we have been and are currently experiencing is asset deflation not price deflation. The government keeps feeding us a line of shit that they are “saving the economy” through looting the Treasury all in the name of deflation.
December 11th, 2008 at 9:57 am
I’d love to see the Fed issue debt because we’d love to read its prospectus to see its owners and a
detailed summary of the Fed’s assets and liabilities.
December 11th, 2008 at 12:20 pm
I prefer Soylent Green over Logan’s Run.
HA! I was debating which one to post. Time for Beethoven’s 6th
I passed on Soylent Green because, even though Dick Cheney would love the idea, there is no way anyone in government could come up with the ‘cost saving’ product idea for soylent green to feed to the masses
December 11th, 2008 at 1:04 pm
I passed on Soylent Green because, even though Dick Cheney would love the idea, there is no way anyone in government could come up with the ‘cost saving’ product idea for soylent green to feed to the masses
Not this government perhaps, but I could foresee soylent green becoming plumpy nut mark 2… Using boomers to feed starving children? A modest proposal indeed!