Bear Mountain Bull

This is getting ridiculous. All we’re doing to trying to take the debt out of the hands of companies and consumers and load if off on the government – and now the Fed.

From The Big Picture:

Today’s WTF meme of the day is this WSJ article, Fed Weighs Debt Sales of Its Own:

The Federal Reserve is considering issuing its own debt for the first time, a move that would give the central bank additional flexibility as it tries to stabilize rocky financial markets.

Government debt issuance is largely the province of the Treasury Department, and the Fed already can print as much money as it wants. But as the credit crisis drags on and the economy suffers from recession, Fed officials are looking broadly for new financial tools.

Fed officials have approached Congress about the concept, which could include issuing bills or some other form of debt, according to people familiar with the matter.

It isn’t known whether these preliminary discussions will result in a formal proposal or Fed action. One hurdle: The Federal Reserve Act doesn’t explicitly permit the Fed to issue notes beyond currency.

Just exploring the idea underscores many challenges the ongoing problems are creating for the Fed, as well as the lengths to which the central bank is going to come up with new ideas.

There are going to be screams about this.

The Fed’s balance sheet is a shambles, blasting from 900 billion to more than $2 trillion since August alone.

More from the WSJ article:

The ballooning balance sheet is presenting complications for the Fed. In the early stages of the crisis, officials funded their programs by drawing down on holdings of Treasury bonds, using the proceeds to finance new programs. Officials don’t want that stockpile to get too low. It now is about $476 billion, with some of that amount already tied up in other programs.

The Fed also has turned to the Treasury Department for cash. Treasury has issued debt, leaving the proceeds on deposit with the Fed for the central bank to use as it chose. But the Treasury said in November it was scaling back that effort. The Treasury is undertaking its own massive borrowing program and faces legal limits on how much it can borrow.

Bill Cara comments:

Isn’t it time that the average American understand the workings of the Federal Reserve Bank? After all, since August the Fed’s balance sheet has grown from under $900 billion to more than $2 trillion. It’s already out of control.

As I see it, without an F-Bill, there is no way US interest rates and the price of gold can stay this low for much longer. But with an F-Bill, it’s a whole new ball game.

The flip side of an F-Bill is that the Interventionists in the US financial system would thereafter have total control over the value of assets. Is that what we want? Don’t we need a free capital market to independently price the value of assets?

The ability of any party to issue debt completely devoid of asset backing is too much for me to comprehend. If it’s allowed to happen, I’d say the monetary authorities in the US are foolish and the American public and their legislative representatives must be completely ignorant.

Allowed to happen or not, I don’t think there’s much debating that last line.