Tuesday, April 3, 2012
Keystone Cops at the Fed!
Just reported on CNBC that the Fed is running out of short-term securities to sell.
As you know, the Fed has been selling short-term securities as part of Operation Twist (and buying long-term securities).
Where does the Fed get short term securities in the first place?
It gets them when the Treasury sells T-Bills every week. Then the Fed goes and buys back those same bills from the public as part of their normal monetary operations/interest rate setting activity.
Actually, the purchase of T-bills by the Fed is the same thing as the government having never sold them in the first place. (Think about it…the government sells them, then the Fed buys them. It's like the gov't never sold them in the first place.)
Anyway, if the Fed runs out of short-term securities it could just very easily step aside and let the Treasury sell the bills and not worry about it. It’s the exact same thing as the Treasury first selling them, followed by the Fed buying them, followed by the Fed selling them AGAIN. (It’s even simpler, right?)
But, no, they don’t want to do it that way because of the PERCEPTION that if the Fed only bought long-term securities and didn’t sell short-term securities, then somehow that would constitute “printing money” and everyone would jump all over them for that.
In other words they either can’t or are AFRAID to explain the simple mechanics of what is going on. They prefer to go through this whole exercise in obfuscation and I wouldn’t be surprised if they actually even create some new “Fed bond” which will cause the whole world to wonder what is going on, in order for them to avoid having to explain to people how the whole system works.
It’s the Keystone Cops…literally.
If it were not for the fact that these people are in charge of our economy, the whole thing would be hilarious. Instead, it’s just pathetic!