World Debt

[Tippit]

Um...hello? I could spend several minutes thrashing you about the head and shoulders explaining why this is such a boneheaded statement, or I could just refer you to the Federal Reserve web site and suggest you take a gander at the URL domain extension.

Does the President of the US appoint the FedEx Chairman?

The Fed is a quasi-private organization. It has private stock which is restricted and held by member banks, but the Board of Governors is a government body and operates out of Washington. In the end it doesn't really matter what we call it, all that matters is who it serves, and why.

 

[ravdin]

Um...hello? I could spend several minutes thrashing you about the head and shoulders explaining why this is such a boneheaded statement, or I could just refer you to the Federal Reserve web site and suggest you take a gander at the URL domain extension.

Does the President of the US appoint the FedEx Chairman?

The 12 regional banks in the Federal Reserve system have board members appointed by their member banks, not by any government agency. Take a close look at the domain extension on the New York Fed as an example.

 

[Puppycow]

The Federal Reserve, not the government, is lending money at low (i.e. zero) rates. The Federal Reserve is a private consortium of banks and isn't a government entity any more than Federal Express is.

Uh, no. There may be a kernel of truth to that, but the government still set up the Fed and has majority control over it.

http://www.federalreserve.gov/faqs/about_14986.htm

Note the domain extension.

The Federal Reserve System fulfills its public mission as an independent entity within government. It is not "owned" by anyone and is not a private, profit-making institution.

As the nation's central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms.

However, the Federal Reserve is subject to oversight by the Congress, which often reviews the Federal Reserve's activities and can alter its responsibilities by statute. Therefore, the Federal Reserve can be more accurately described as "independent within the government" rather than "independent of government."

The 12 regional Federal Reserve Banks, which were established by the Congress as the operating arms of the nation's central banking system, are organized similarly to private corporations--possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.

6% dividends per year does seem like a pretty sweet deal though. It's good to be a bank.

 

[Sceptic-PK]

The 12 regional banks in the Federal Reserve system have board members appointed by their member banks, not by any government agency. Take a close look at the domain extension on the New York Fed as an example.

The structure of the Fed is irrelevant to its activities or functions. The Fed works in exactly the same way as every other central bank you care to name (specific jurisdictional roles notwithstanding). The fact that the US central bank is a quasi-governmental entity does not alter its function, its role or its goals. Certainly it isn’t correct describe the US Fed for being a “private bank”. For all intents and purposes it is a Federal Agency.

Ironically the people that complain about the relatively unique structure of the Fed are the same type of people who were responsible for that structure- people too paranoid about the government OR the banking sector to trust either with the central bank haha.

 

[psionl0]

Yes, the scheme is outrageous. Essentially the government is lending money at low rates, then borrowing that same money back at higher rates.

As I understand it, the Fed is using the money it prints to buy mortgage backed securities. The last I heard, mortgages don't have a 0% interest rate.

The Fed might well be buying up some toxic debt but any money it is giving away is small bikkies compared to the government deficit.

 

[Tippit]

As I understand it, the Fed is using the money it prints to buy mortgage backed securities. The last I heard, mortgages don't have a 0% interest rate.

The Fed might well be buying up some toxic debt but any money it is giving away is small bikkies compared to the government deficit.

According to Bernanke's testimony yesterday, it's buying $40 billion worth of agency mortgage-backed securities, and $45 billion worth of Treasuries per month. But that is simply their open-market activity, it doesn't account for loans, swaps, and all the other transactions that happen on a routine and daily basis, which are not transparent.

As far as evidence that the Fed issues cheap money to its friends, have you read this:

http://www.sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-62060dcbb3c3

Included in those loans were some $30 billion presumably to a proxy for the Bank of Libya. If it was uncovered that the Fed has made these types of loans before, what do you think the odds are that it happens on a routine basis?

It's a free money party, and you're not invited.

 

[Emperor_Gestahl]

Does the President of the US appoint the FedEx Chairman?

But Wall Street basically decides who wins the presidential primaries, so we're stuck in a chicken or the egg paradox.

 

[ngc6205]

The 12 regional banks in the Federal Reserve system have board members appointed by their member banks, not by any government agency. Take a close look at the domain extension on the New York Fed as an example.

You are, at least partially, wrong. First, the Federal Open Market Committee, which mainly consists of the Board of Governors, makes all the monetary policy decisions. The structure of the 12 district banks has little to do with it. Second, the member banks of each district are split into three groups according to size by the Board of Governors. Each member bank in each group gets one vote for each of two seats on the district bank's board of directors. So, the member banks elect six of the nine members of the board of directors of the district banks. The other three directors are appointed by the Board of Governors. The Chairman of the Board and the Vice-Chairman of the Board of each district bank are selected by the Board of Governors from the three that the Board of Governors appointed. See 12 USC Chapter 3, SubChapter 7. http://www.law.cornell.edu/uscode/text/12/chapter-3/subchapter-VII

 

[psionl0]

As far as evidence that the Fed issues cheap money to its friends, have you read this:

http://www.sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-62060dcbb3c3

Yes, I have seen that link before. It bandies about quite a few numbers but it omits the crucial bit of information you need if you are going to be truly outraged by the Fed: "How much interest has the Fed missed out on because of these cheap loans"?

Without that information, we don't know if we are dealing with a "somebody ought to go to jail for this" type problem or a "WOW! The taxpayers are really getting shafted!" type problem.

 

[Sceptic-PK]

POST

This subforum has sorely missed your posts.

 

[Tippit]

Yes, I have seen that link before. It bandies about quite a few numbers but it omits the crucial bit of information you need if you are going to be truly outraged by the Fed: "How much interest has the Fed missed out on because of these cheap loans"?

Without that information, we don't know if we are dealing with a "somebody ought to go to jail for this" type problem or a "WOW! The taxpayers are really getting shafted!" type problem.

I don't care what the interest rate is. I care that there is a quasi-private entity with the monopoly right to create money ex nihilo for the private benefit of its cronies. It wouldn't matter if the credit was used to buy little government debt, or no government debt at all. It could (and is) being used to manipulate stocks, corporate bonds, or any market they want.

 

[psionl0]

...The Fed then arranges for they or the banks they control to have loans at interest rates that amount to more or less free money, which is then flipped into interest bearing government debt ...

... some of the debt is financed by printing money for cronies ...

...lends to private member banks, as well as primary dealers and various wall street banks at rates not available to the public (the part about free money). ...
If I somehow managed to counterfeit $100 billion dollars, and Congress agreed to create $100 billion worth of USG obligations and lent it to me, the American people shouldn't be on the hook to service the interest.

...As far as evidence that the Fed issues cheap money to its friends...

I don't care what the interest rate is.

 

[ngc6205]

This subforum has sorely missed your posts.

I have been busy living life. Also, I have a low tolerance for stupidity. The few times that I have stopped by the past few months, I read a few topics/posts, roll my eyes, and close the browser.

 

[Tippit]

I don't care about the interest rate because it's obviously low enough to provide a profit for wall street primary dealers, and that's secondary to the fact that the Fed should not exist, let alone have the right to create money.

 

[psionl0]

It's not obvious at all since you don't know if the interest rate is lower than the bond rate or not.

 

[Emperor_Gestahl]

It's not obvious at all since you don't know if the interest rate is lower than the bond rate or not.

It's not the rate I'm confused about, it's the duration. If a 10-year bond can't be allowed to go 10 years, is it a 10-year bond?

 

[psionl0]

It's not the rate I'm confused about, it's the duration. If a 10-year bond can't be allowed to go 10 years, is it a 10-year bond?

I don't know if Treasury does any compulsory buyback of bonds. They seem to be more interested in selling than buying.

Of course, there is nothing to stop a bond holder from selling his bonds on the open market before they mature and I believe that is where the Fed buys them from. The price you would get would depend on the effective interest rate (also known as "rate to maturity") the market expects to get from the bonds.

Tippit claims that the Fed is lending money to its cronies at interest rates less than they could get from buying bonds. This would be scandalous if true - especially if this was being done on a large scale.

 

[Emperor_Gestahl]

I dunno what Tippit is saying, I'm just not sure if I can consider a 10yr bond to be a 10yr bond when the Fed can buy the bond after any amount of time after which Treasury is no longer paying interest on it. Not sure where I'm going with this, it just seems like the duration is being fiddled with.

 

[psionl0]

I'm just not sure if I can consider a 10yr bond to be a 10yr bond when the Fed can buy the bond after any amount of time after which Treasury is no longer paying interest on it.

You weren't paying attention. The Fed buys bonds that have been put up for sale in the open market.

The treasury still makes payment on the bonds held by the Fed. It's just that the Fed's profits get returned to the treasury so it doesn't cost the treasury anything. There is no fiddling going on - unless you think that bond holders should not be allowed to resell their bonds.

 

[Emperor_Gestahl]

I know bond holders have the option of holding to maturity, but it's different when the Fed holds them because the Treasury is effectively no longer paying interest at that point. Like I say I dunno quite what I'm getting at, it just strikes me as a quasi-buyback. If rates rise and the Fed gets the bonds at a discount that differential too is remitted to Treasury eventually when the bond matures. <shrug>, I need to cogitate on it some more.