The Shell Game - How the Federal Reserve is Monetizing Debt

Replacing private credit with public credit

Tuesday, August 25, 2009, 9:44 am, by cmartenson

Our entire monetary system, and by extension our economy, is a Ponzi economy in the sense that it really only operates well when in expansion mode

"Executive Summary

• The Federal Reserve and the federal government are attempting to "plug the gap" caused by a slowdown of private credit/debt creation.
• Non-US demand for the dollar must remain high, or the dollar will fall.
• Demand for US assets is in negative territory for 2009
• The TIC report and Federal Reserve Custody Account are reviewed and compared
• The Federal Reserve has effectively been monetizing US government debt by cleverly enabling foreign central banks to swap their Agency debt for Treasury debt.
• The shell game that the Fed is currently playing obscures the fact that money is being printed out of thin air and used to buy US government debt.
• The Federal Reserve is monetizing US Treasury debt and is doing so openly, both through its $300 billion commitment to buy Treasuries and by engaging in a sleight of hand maneuver that would make a street hustler from Brooklyn blush. ..."

Comment by Norton:
1. Send billions of dollars of taxpayer money to banks to make them liquid again and start lending.
2. Also, buy up bank distressed (junk) assets like CDO's, mortgage dirivatives are FULL value instead of "mark-to-market." Legitimize this process by dropping the "mark-to-market rule". All done with taxpayer money.
3. Uups, the banks are hording this money, paying out outsized bonuses to the executive crooks that caused this crisis, and using this cash on their financial statements to make it look like they are liquid and profitable. Keep in mind, they still have the junk CDOs' etc OFF the BOOKS.
4.FED lending rate to banks and interbank loans drops to zero. While the banks lend it out at average 6 %. This enables Bank of America to pay back the TARP funds early.
5. Wait though ... our taxpayer money is loaned out to the bank at ZERO interest. The bank turn around and loan it back to Joe Public or Joe business or buy Emerging Market investments making 10% plus on our money. Then they payback the TARP loan. So they have made money TWICE ON THE TAXPAYER: first by getting our $ at ) interest and then by loaning our money out to us at 6 to 20 to 30 percent and then the bank pays us back. WHAT AM I MISSING HERE?
6. Bank gets the "private "profits and we get the multi-generational "public" debt. MOre of it!
7. Oh yes, the FED promised to make their financial statements transparent; however, they just said NO to our Congress! OUr Congress has tried to sue the FED for not revealing this shell game, what they paid for distressed assets and what they are selling them for.
8. Meantime, the US Treasury is having auctions to sell US Bonds. When they have been too few buyers, so the FED steps in as a buyer using taxpayer money to payoff matured US Bond debt and issue new US Bond instruments. Can we see the money flow by the FED and Treasury for all of this? NO! They have refused the request.