Busted: Bankers and The Global Economy

February 20, 2008

Landmark Fed Decision for Open Market

Today, the Federal Reserve Board and the Federal Open Market Committee released the minutes of the Committee meeting held on January 29-30, 2008:

moneywheelbarrow.jpgIn a new confirmation measure at that FOMC meeting, the Federal Reserve has been authorized to purchase and sell securities and bonds to serve as a protection to the economy of the United States. Essentially, the Fed of New York “has been given” carte blanche to influence and sustain the open securities marketplace and to use whatever means it deems necessary to prevent a financial catastophe through purchasing on the open market.

Constitutionally, I am not certain what authority the FOMC has to exercise this kind of control, nor act to influence the marketplace directly using free access to the U.S. national debt. Nevertheless, the vote persists, giving the Federal Reserve Bank of New York full operating authority to act as a “free market broker”. This shows the perceived gravity of the economic situation in the United States. Some of the details are outlined below:

1. The Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York, to the extent necessary to carry out the most recent domestic policy directive adopted at a meeting of the Committee:

(a) To buy or sell U.S. Government securities, including securities of the Federal Financing Bank, and securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States in the open market, from or to securities dealers and foreign and international accounts maintained at the Federal Reserve Bank of New York, on a cash, regular, or deferred delivery basis, for the System Open Market Account at market prices, and, for such Account, to exchange maturing U.S. Government and Federal agency securities with the Treasury or the individual agencies or to allow them to mature without replacement;

(b) To buy U.S. Government securities, obligations that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States, from dealers for the account of the System Open Market Account under agreements for repurchase of such securities or obligations in 65 business days or less, at rates that, unless otherwise expressly authorized by the Committee, shall be determined by competitive bidding, after applying reasonable limitations on the volume of agreements with individual dealers.

(c) To sell U.S. Government securities and obligations that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States to dealers for System Open Market Account under agreements for the resale by dealers of such securities or obligations in 65 business days or less, at rates that, unless otherwise expressly authorized by the Committee, shall be determined by competitive bidding, after applying reasonable limitations on the volume of agreements with individual dealers.

Federal Reserve Minutes

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