The 1% Doctrine
With a record like this, was anyone surprised by the Fed's move today?
Contrary to popular perception, Bernanke isn't some amiable rube who came to Washington and stepped in someone else's mess. The system of monetary policy and regulation that failed so epically is one he's had an important role in shaping for decades. So why is he still allowed to run the Fed? And when will Congress close the loophole that one day will allow him to collect huge paychecks from the same Wall Street firms whose profits and survival depend on decisions he's making right now?
Contrary to popular perception, Bernanke isn't some amiable rube who came to Washington and stepped in someone else's mess. The system of monetary policy and regulation that failed so epically is one he's had an important role in shaping for decades. So why is he still allowed to run the Fed? And when will Congress close the loophole that one day will allow him to collect huge paychecks from the same Wall Street firms whose profits and survival depend on decisions he's making right now?
posted by The Cunning Realist at Wednesday, October 29, 2008
6 Comments:
Fed Funds have been trading on their own at .75%. Now it's true that a gigantic and complex combination of factors have brought that rate and the Fed has a hand in many of them. However the Fed has not had to do any open market operation of the loose variety in order get rates there.
To repeat, the FF was 1.5% this AM and the actual FF market has been below that, often significantly, for some time. The actual setting of this 'target' is meaningless window dressing.
If and when the Overnight market starts trading consistently above the target we will see what they do. That's when something of real significance could be seen happening.
The textbook says the Fed uses open market operations to manage the FF rate. They never have really done that. (It should be noted that FF targeting is a new phenomenon. Till a couple of years ago the Feds main policy tool was the Discount Rate. A rate they set by edict, and still do.(Discount Window borrowing is moving from record high to record high by the way now))
ALOHA !!
Yes, finally someone here that gets it! Thank you RAPIER!
I will take those comments one step further. Why do we need a US FED? Is there some function the US FED can do that the US TREASURY cannot? I think not!
If the US TREASURY(just a fancy name for the US TAXPAYER)has to save the US Banks then cut out the middleman! In fact CUT OUT the US BANKS!
My simple monetary flow chart ...
US TREASURY >>>> US FED >>>> US BANKS >>>> LOANS
I see two unnecessary entities in the way of getting loans to US businesses and US citizens ... The US FED and the US BANKS!
Why can't we just take down the signs at the US FED buildings and take down Bank America signs and put up signs that say BANK OF WE THE PEOPLE! We cut out all that overhead and added fees and interest rates. Why should we have to pay interest rates anyway? Isn't it our money the current US Banks are leveraging and lending out to super risky counterparties?
Let me get this straight ... The US BANKS are bailed out by US TAXPAYERS to the tune of trillions all the while the US BANKS get to borrow at the Fed Funds/Discount rate and WE THE PEOPLE are stuck with credit cards of 16% rates or higher????? What sort of hockus pocus is that? Man, the MAFIA must be drooling!!
CUT OUT THE MIDDLEMEN!!!
Only one Presidential candidate has proposed getting rid of the US FED.
RON PAUL ...
Guess who I am voting for?
Fresh blood and perspective at the Treasury and Federal Reserve would be a step in the right direction.
Oh joy. Lower income. Less on our savings. Looks like desperation by Bernanke to appease Wall Street.
Fed Funds this morning, 11/3 are trading at .25%. The Fed did no new open market operations. The Fed has stopped doing significant open market operations. It works only in the background through it's gigantic special facilities. Those operations are opaque and revealed partly on Thursdays.
In any case they are doing nothing to defend the 1% fed funds target. The target is a joke. It has no meaning.
The Treasury will raise 'only' $47 billion in new money this week. By the end of next week the deficit for the fiscal year, 6 weeks, will be over $500 billion. An amount so staggering as to be incomprehensible. Made more so by the fact that the demand of the Treasury paper is insatiable.
This will end badly.
I hope he makes the right decision because even his life depends on the decisions he makes.
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