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‘Creative Accounting’ at the Federal Reserve?

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As the story goes, the Federal Reserve”made” $91 billion dollars last year, sending $89 billion of that to the U.S. Treasury. Until 2008, about the only earning assets the Fed owned were U.S. Treasury bonds.

Let’s stick with that for the moment.

The interest the Fed earns on those bonds is paid by the U.S. Treasury! The Fed keeps 1 percent of the earnings to pay its rent and sends the rest back to the Treasury. So every dollar the Treasury pays to the Fed is returned, less a 1 cent handling cost. So the interest cost the Treasury incurs is magically turned into Treasury income!

There is no limit in principle to the amount of Treasury debt the Fed can buy so it can makes lots of money!! The Fed has increased its assets by over $2 trillion since 2007, a real money-maker!

Yes, the Fed has also purchased a lot of mortgage backed securities, but those have a Treasury guarantee, so same deal, in terms of who bears the risk, but of course mortgage holders are paying the interest and giving it to the Treasury (that lent them the money in the end).

Read more from this story HERE.

In A Crummy Economy, Why Are Stocks Soaring?

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Economic growth is pitiful. Unemployment has topped 8 percent for an exhausting 43 months. The nation is careering toward a so-called fiscal cliff, and maybe a recession.

So why is the Dow Jones industrial average, that trusty gauge of corporate America’s strength, just 4 percent shy of an all-time record? And why are the smaller public companies measured by the Russell 2000 index almost there already?

Start with two words: Ben Bernanke.

Bernanke, the Federal Reserve chairman, last week announced unprecedented measures aimed at lifting the sagging economy — and boosting the prices of assets like stocks and houses. The market rallied all summer in anticipation of such a move.

The Fed made an open-ended promise to purchase $40 billion a month in mortgage bonds and said it will keep interest rates low through 2015, even if the economy starts to improve.

Read more from this story HERE.

Bernanke Pursuing Failed Policies of the Past, Pushing For Yet Another “Stimulus”

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Photo Credit: DerFussi

The Federal Reserve chairman, Ben S. Bernanke, delivered a detailed and forceful argument on Friday for new steps to stimulate the economy, reinforcing earlier indications that the Fed is on the verge of action.

Calling the persistently high rate of unemployment a “grave concern,” language that several experts described as unusually strong, Mr. Bernanke made clear that a recent run of tepid rather than terrible economic data had not altered the Fed’s will to act, because the pace of growth remained too slow to reduce the number of people who lack jobs.

The federal government said on Wednesday that the economy expanded at an annual rate of 1.7 percent in the second quarter, slightly higher than its initial estimate of 1.5 percent but lackluster in normal times. A measure of consumer confidence hit a three-month high on Friday, but that, too, was impressive only in comparison with the immediate past. The government will release a preliminary estimate of August job growth next week; it is expected to show that the unemployment rate remains above 8 percent.

Mr. Bernanke said that the Fed’s efforts over the last several years had helped to hasten economic recovery, that there was a clear need for additional action and that the likely benefits of new steps to stimulate growth outweighed the potential costs.

“It is important to achieve further progress, particularly in the labor market,” Mr. Bernanke said. “Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”

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House passes Ron Paul’s ‘Audit the Fed’ bill; Bernanke calls it a “nightmare scenario”

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In a move that serves as a capstone to Rep. Ron Paul’s colorful career, the House on Wednesday voted to have Congress‘ chief investigators conduct a full audit of the Federal Reserve’s shrouded decision-making process.

The overwhelming 327-98 vote sends the measure to the Senate, where Majority Leader Harry Reid, Nevada Democrat, at one time expressed support for an audit — though he reportedly has changed his mind.

House passage already marks a high-water mark for those who for years have been pushing for an audit, led by Mr. Paul. The Texan rode the slogan “Audit the Fed” to prominence in two Republican presidential primary campaigns, and he said the bill is a chance for Congress to begin to reclaim the money and banking powers it is given in the Constitution, but had delegated to the Fed.

“It is up to us to reassert ourselves,” Mr. Paul said during floor debate Tuesday.

Fed Chairman Ben S. Bernanke doesn’t like the prospect of such a broad audit, calling it a “nightmare scenario” last week and saying it would lead to politicians second-guessing his decisions.

Read more from this story HERE.

Photo credit:  Joe Miller, All Rights Reserved.