Financial innovation hasn’t stopped, it’s just being done by the government

The Federal Reserve explored the idea
of issuing its own debt in discussions with Congress as the
central bank sought ways of coping with a balance sheet that has
more than doubled in the past year.

Here is much more.  I don’t think this is intended as an application of Neil Wallace’s legal restrictions theory of money.  Rather the goal is to give the Fed a new funding option at a time when excess reserves are not always a desirable means of balance sheet expansion.

I wonder if such securities would trade at a discount or premium to Treasury securities or if it’s even a good idea to find out.

I too would like the ability to borrow large sums at a zero rate of interest, which right now I can do only from Natasha.  But you know, it’s funny: if I had the right to print my own money, I’d actually be plenty happy with that.  I guess not everyone is so easily satisfied.

Comments

I think if they do issue securities, they should be called F-bombs :-)

Who is this Natasha?

NS
http://sciencedefeated.wordpress.com/

Maybe I am reading you wrong, but you seem pretty darned sanguine about the very recent and very complete overhaul of our financial system.

I think our nation is headed toward ruin.

I think http://market-ticker.denninger.net/archives/682-FLASH-Get-The-Stocks-For-The-Fed.html

says it best:

There is a flash on the WSJ Newswire that The Fed has "approached Congress" about issuing its own debt.

"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."

No kidding. Then again The Federal Reserve Act doesn't permit buying other than agency and treasury debt as it stands, but that hasn't kept Bernanke from doing so more than once through chicanery and his famous "Maiden Lane LLCs", has it?

Congress (and the FBI!) seem rather adverse, shall we say, toward enforcing the law. Why?

And what would this debt be backed by? Nothing?

Then nobody would buy.

Full Faith and Credit (directly or indirectly by obligating the currency of) United States? That's a problem.

The Federal Reserve, a private bank, is asking for permission to issue debt in the name of the taxpayers of this nation, obligating them to pay it down and cover the interest on same, without oversight as to how the proceeds are used and under what limits and terms it is issued?

You're kidding me, right?

If this report is real and Congress does not immediately disavow this attempt - publicly - we no longer have a Constitutional Republic.

That The Federal Reserve would even discuss such a thing with Congress is, in my opinion, grounds for instantaneous revocation of The Federal Reserve Act of 1913 and a return of the control of our monetary system to Congress where it belongs.

It is my considered opinion that any attempted usurpation of the Constitutional power to obligate the citizens of this nation to pay debt via taxation, which under the Constitution of The United States must originate by specific bill in The House of Representatives (all spending bills must originate in The House), is a blatant attempt to overthrow by chicanery The Government of The United States and must be treated as such by The FBI, The Department of Homeland Security and the citizens of this nation.

Let me be clear. This is not "reflating" or "inflating" or "hyperinflating" or anything of the kind, although I'm sure some people will pipe up and make all sorts of noise in that regard.

In my opinion this "discussion" constitutes an attempted coup - period.

Bernanke must resign.

Today.

(Yes, I'm well-aware that such a proposal does not meet the definitions that permit indictment under 18 USC 2385, as violence and/or force is not being proposed - unless you consider destruction of the nation's currency and tax base a violent act, of course. In that case Bernanke has a 20 year long date with someone named "Bubba" in his future. It couldn't happen to a nicer guy.)

If this report is real and Congress does not immediately disavow this attempt -
publicly - we no longer have a Constitutional Republic.

The author of "Who Killed The Constitution" will be the guest of "The Box Program" sponsored and
hosted by The Commonwealth Foundation (sort of like CATO but focusing on Pennsylvania) at 8:00AM WHP580
Harrisburg PA, Saturday 12/13/2008.

If not up or in AM range (dorry, its not a 50K blowtorch) , available for podcast @ theboxprogram.com

I too would like the ability to borrow large sums at a zero rate of interest, which right now I can do only from Natasha.

No zero rate from Yana? I borrow from my kids now and then at zero rate. Always paid back promptly. Don't want them thinking too badly of me when I'm old and need help....

I can get a zero-principal loan from my family.

The FED issue its own debt? Doesn't it do that already? Isn't it called money?

wont, not won't

Thank you Bill Woolsey. I'm surprised Prof. Cowen didn't pick up on the obvious: the Fed probably wants another avenue to "sterilize" the currency it is injecting. By selling its own bonds, the Fed could skip the hassle of coordinating with Treasury or other players as it attempts to manage the tsunami of monetary inflation it has unleashed.

I think the Fed should be buying government debt not selling more.

If the Fed issued new dollars and used them to buy part of that $10 trillion we owe, it could pump new dollars into the economy without investing in wasteful spending. And our debt goes down, not up.

We should do this to stabilize the dollar. We need to end the deflation and not re-inflate.

More dollars in the world will counter the collapse of other stores of value such as housing, but we must be disciplined about. We must have stability and take away the government's ability to destroy the economy by setting the value of the dollar to something concrete like gold. Or concrete. Something.

Yes, politicians will find other ways to use the economy to win re-election, but one less weapon is a good start.

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