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Yes, because the government picks the chairman (who only gets one vote), the FED is "regulated by the government". The FED is an independent organization and is not "regulated by the government".
Okay, true, the FED is an independent agency which uses it's balance sheet to purchase U.S. Treasuries, which monetizes the debt of the U.S. Government. The FED supposedly earns money from the interest that it collects on the debt that it buys.
But, with the U.S. Treasury increasing its sales of Treasuries, and the FED continually buying (either Treasuries directly, or else agency debt from foreign banks so that they can buy Treasuries) from where does the FED get its additional money to keep purchasing more and more of that debt? The interest that it earns cannot keep pace with the debt being floated by the U.S. Treasury department.
For example, let's say the FED lends $1 billion to the U.S. Treasury by purchasing $1 billion in a U.S. Treasury bond paying a coupon rate of 5%. Thus, its annual income from that bond on its balance sheet is $50 million. Now, theoretically, it could turn around and buy another $50 million Treasury bond with the interest that it will be earning from the first bond. But the U.S. Treasury is issuing ANOTHER $1 billion bond, not $50 million. Eventually, for the FED to keep buying those massive bonds, they need to come up with another way of earning money. How do they do it?
I suspect that you don't know either (like us), but have accepted the "hand-waving arguments" put forth by the government officials: Bernanke, Geithner, and Mr. Obama. Is there a magic wand in that hand?
....Treasury is issuing ANOTHER $1 billion bond, not $50 million. Eventually, for the FED to keep buying those massive bonds, they need to come up with another way of earning money. How do they do it?
You appear to be asking an obvious question, the FED controls the supply of money and can write money into existence. How does it purchase treasuries? Simply by creating the money by making adjustments to its balance sheet.
The FED can do this all night and day, but usually such actions will result in inflation. But the current environment is not usual and the only sort of inflation they can hope to create is hyperinflation (which they would not dream of doing, it would mean the downfall of the FED).
You appear to be asking an obvious question, the FED controls the supply of money and can write money into existence. How does it purchase treasuries? Simply by creating the money by making adjustments to its balance sheet.
The FED can do this all night and day, but usually such actions will result in inflation. But the current environment is not usual and the only sort of inflation they can hope to create is hyperinflation (which they would not dream of doing, it would mean the downfall of the FED).
Okay, here is how they have been adjusting the balance sheet:
They geared up their balance sheet, from less than $1 trillion before August 2008, to over $2 trillion this month. Additionally, the mix of assets are changing, from 'easy to unwind' assets to 'hard to unwind' assets (such as Mortgage-Backed Securities).
It just doesn't look good, and I am not a gold bug.
The Euro will become the currency of reserve, worldwide.
And not before time.
Our ECB is the best central bank there is.
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