Thursday, April 10, 2008

The End Game

The Fed is now considering borrowing from the Treasury (US taxpayers). Were the Fed to have to do this to remain whole, i.e., have the Treasury underwrite the Fed's balance sheet, the US central bank would be de facto insolvent, having insufficient assets to carry out its mandate.

The perceived invincibility of the Fed's ability to reflate is now clearly in question. The Fed's own discussions prove it.