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Reply #183: I think you have it backwards [View All]

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Recursion Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Dec-13-10 12:29 AM
Response to Reply #166
183. I think you have it backwards
A trillion in MBS with Frannie and Freddie written on it. That I believe is taxpayer risk, as taxpayers are the underwriter's of those obligations. It's held by the FED or do I have this wrong?

The Freddie/Fannie MBS's are ultimately backed by the taxpayer, yes. The Fed bought a lot of them because other brokers wouldn't -- that's the Fed putting their money on the line to save our money, not the other way around.

Then there's the gold. Who does that belong to?

The bullion the NY Fed holds? A bunch of foreign countries and sovereign wealth funds.

Are you saying, we the taxpayer's don't owe the FED anything?

Well, when the Fed buys US Debt we owe that to them. That's kind of the whole point; the Fed is a ready market for Treasury debt.

QE2 is the FED buying US debt and according to Ben: " We are using the FED's money to do this ".

So who's money was he using before this?

If you've ever bought a savings bond, yours. Both individual and institutional investors buy US debt; the Fed bought a lot to both increase the money supply and heat up the treasury bond market. If the Fed is buying bonds, other people are more willing to buy them because if they chicken out they can sell them to the Fed.

You asked "whose money was he using before": nobody's. The whole point is the Fed is making purchases of debt at a level it wasn't before.

I know the FED can create money and the Treasury can sell debt.

So if the FED is buying Treasury debt, with their money, taxpayers are not on the hook for the loan?

Sure we are, but you're acting like the Treasury was minding its own business and the Fed walked up and talked them in to borrowing money.

The Treasury has an allowable debt level set by Congress, and then has to auction off those bonds; the Fed is buying some up to make the price the Treasury gets higher.

Are you somehow more comfortable selling the bonds to China, or to banks with zero accountability? (The Fed's accountability is insufficient, but it's certainly more than the fully private banks'.)
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