Bill Mitchell — When intra-governmental relations became absurd – the US-Fed Accord – Part 3

I am writing this while waiting for a train at Victoria Station (London), which will take me to Brighton for tomorrow’s presentation at the British Labour Party Conference. 

The last several days I was in Kansas City for the inaugural International Modern Monetary Theory Conference, which attracted more than 200 participants and was going well when I left it on Saturday. A great step forward. I believe there will be video for all sessions available soon just in case you were unable to watch the live stream.
Today’s blog completes my little history of the US Treasury Federal Reserve Accord, which really marked a turning point (for the worse) in the way macroeconomic policy was conducted in the US.

In Part 1, I explained how from the inception (1913), the newly created Federal Reserve Bank, America’s central bank, was required by the US Treasury Department to purchase Treasury bonds in such volumes that would ensure the yields on long-term bonds were stable and low. There was growing unease with this arrangement among the conservative central bankers and, in 1935, the arrangement was altered somewhat to require the bank to only purchase debt in the secondary markets. But the change had little effective impact. The yields stayed low as was the intent. Further, all the prognistications that the conservatives raised about inflation and other maladies also did not emerge (which anyone who knew anything would have expected anyway).
In Part 2, I traced the increased tensions between the central bank FOMC and the Treasury, which in part was exacerbated by the slight spike in inflation that accompanied the spending associated with the prosecution of the Korean War in the early 1950s. The tension manifested into open disagreement about the FOMC’s desire to raise interest rates and end the pegged yield arrangement with the Treasury. In
Part 3, we discuss the culmination of that tension and disagreement and examine some of the less known and underlying forces that were fermenting the central bank desire for rebellion.…

Paragraphing added.

Bill Mitchell – billy blog
When intra-governmental relations became absurd – the US-Fed Accord – Part 3
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — When relations within government were sensible – the US-Fed Accord – Part 1

The topic centres on an agreement between the US Federal Reserve System (the central bank federation in the US) and the US Treasury to peg the interest rate on government bonds in 1942. What the agreement demonstrated is that a central bank can always control yields on government bonds, which includes keeping them at zero (or even negative in the current case of Japan). What it demonstrates is that private bonds markets, no matter how much they might huff and puff about their own importance or at least the conservatives who are ‘fan boys’ of the bond markets), the government always rules because of its currency monopoly….

Bill Mitchell – billy blog
When relations within government were sensible – the US-Fed Accord – Part 1
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

John Shaw — US Budget Week:Hill Seeks Tsy/Fed Debt Limit Contingency Plans

Get ready for another debt ceiling rematch. The GOP seems determined to kneecap Uncle Sam and send the US into Third World status with "expansionary fiscal austerity." The Chinese must be rolling on the floor laughing.

MNI
US Budget Week:Hill Seeks Tsy/Fed Debt Limit Contingency Plans

John Shaw

ht Kevin Fathi

Bill Mitchell — The Wall Street-US Treasury Complex

Today’s part of the story, is to trace the growing US influence on the IMF and the way it manipulated that institution to further its ‘free market’ agenda on a global scale. We will consider what Jagdish Bhagwati called the “Wall Street-Treasury complex”, which referred to the way in which financial market interests in the US combined with (pressured) the US Treasury Department to advance the myth that liberalisation of global capital flows would deliver massive benefits in the post-1971 period after the convertible currency, fixed exchange rate system collapsed.

Bill Mitchell – billy blog
The Wall Street-US Treasury Complex
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Moon of Alabama — Financial Warfare As The New Regime Change Instrument

The new weapon of choice to effect regime change.

The obvious blowback is going to be the setting up of alternative financial and payments systems, already underway.

Can Washington beat them to the finish line by effecting regime change and installing neoliberal puppets in BRICS with the incentive of becoming oligarchs.

Moon of Alabama
Financial Warfare As The New Regime Change Instrument

Kenneth D. Garbade — Direct Purchases of U.S. Treasury Securities by Federal Reserve Banks

From time to time, and most recently in the April 2014 meeting of the Treasury Borrowing Advisory Committee, U.S. Treasury officials have questioned whether the Treasury should have a safety net that would allow it to continue to meet its obligations even in the event of an unforeseen depletion of its cash balances. (Cash balances can be depleted by an unanticipated shortfall in revenues or a spike in disbursements, an inability to access credit markets on a timely basis, or an auction failure.) The original version of the Federal Reserve Act provided a robust safety net because the act implicitly allowed Reserve Banks to buy securities directly from the Treasury. This post reviews the history of the Fed’s direct purchase authority. (A more extensive version of the post appears in this New York Fed staff report.) 

FRBNY Liberty Street Economics
Direct Purchases of U.S. Treasury Securities by Federal Reserve Banks
Kenneth D. Garbade | senior vice president in the Federal Reserve Bank of New York’s Research and Statistics Group

AFP — Massive $238 billion financial bailout 5 years ago ‘avoided catastrophe,’ but only $3 billion has been paid back: Treasury

The US Treasury said Wednesday the government’s massive response to the economic crisis five years ago paid off, avoiding a catastrophic breakdown of the financial system.
In a report marking the anniversary of the bankruptcy of investment bank Lehman Brothers — which snowballed into the worst crisis since the 1930s — the Treasury defended deploying hundreds of billions of taxpayer dollars to save other banks, major financial institutions and auto companies.

“Without the government’s forceful response, that damage would have been far worse, and the ultimate cost to repair the damage would have been far higher,” the report summarized.

While the rescue effort required piling up government debt, it was necessary, said Treasury officials who briefed reporters.
“We prevented a collapse of the financial system,” one said on condition of anonymity.

The Raw Story
Massive $238 billion financial bailout 5 years ago ‘avoided catastrophe,’ but only $3 billion has been paid back: Treasury
Agence Presse-France

Warren Buffett: Jamie Dimon Is Best Person For Treasury Secretary

'Nuff said.

The Huffington Post
Warren Buffett: Jamie Dimon Is Best Person For Treasury Secretary
Mark Gongloff