The Fed is Now Buying Commercial Paper

[nobody's_hero]

The Constiwhat?

[buzz_knox]

I'll play - where in the Constitution is any branch of the Federal government authorized to do this?

The Commerce Clause, as interpreted by the Supreme Court since FDR's court packing plan.  We may not like it, but the Supremes say it's legal.

[Manedwolf]

Well, now the rocket that fell off the pad appears to be on fire.

Quick, Ben! Use the extinguisher full of rate cut!

[Headless Thompson Gunner]

Well, the market isn't impressed by this. Morning news was all like "Rally! Rally! We have ignit...uh...*fail*" ...and now the rocket is lying on the ground.

B-b-but the people who oppose low interest rates and easy loans are crazy tinfoil hatters! CRAZY I SAY!!!!

That's not what we're saying and you know it.

Have you not noticed the tinge of irony in my posts?

Besides, I need to rephrase myself: I do oppose easy loans per se - I have serious doubts regarding the very need for a central bank in its current form.

You know enough about economics to know the hows and whys of an elastic money supply.  Credit availability is collapsing all around us and, as a result, the supply of money available to the economy is shrinking sharply.  Circumstances like these are exactly why we have a mechanism to expand the money supply.  By buying commercial paper, the Fed is trying to increase liquidity in the markets (or, rather, to undo the decrease of liquidity caused by collapsing credit).  It's exactly what we need right now.  It might be an unorthodox method, but it makes sense given the circumstances.

So, again, would someone please tell me what the problem with this is?

I'll play - where in the Constitution is any branch of the Federal government authorized to do this?

Article 1 Section 8.

[Gewehr98]

People kvetch, but were the Fed to do absolutely nothing, it would be considerably more than your typical whining and belly-aching.

I am, however, curious what this will do to the Consumer Price Index. 

[richyoung]

I'll play - where in the Constitution is any branch of the Federal government authorized to do this?

The Commerce Clause, as interpreted by the Supreme Court since FDR's court packing plan.  We may not like it, but the Supremes say it's legal.

As someone famously said, "You can put lipstick on a pig..."

[richyoung]

Article 1 Section 8.

Oh really  What part?

"Section 8. The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;

To borrow money on the credit of the United States;

To regulate commerce with foreign nations, and among the several states, and with the Indian tribes;

To establish a uniform rule of naturalization, and uniform laws on the subject of bankruptcies throughout the United States;

To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;

To provide for the punishment of counterfeiting the securities and current coin of the United States;

To establish post offices and post roads;

To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries;

To constitute tribunals inferior to the Supreme Court;

To define and punish piracies and felonies committed on the high seas, and offenses against the law of nations;

To declare war, grant letters of marque and reprisal, and make rules concerning captures on land and water;

To raise and support armies, but no appropriation of money to that use shall be for a longer term than two years;

To provide and maintain a navy;

To make rules for the government and regulation of the land and naval forces;

To provide for calling forth the militia to execute the laws of the union, suppress insurrections and repel invasions;

To provide for organizing, arming, and disciplining, the militia, and for governing such part of them as may be employed in the service of the United States, reserving to the states respectively, the appointment of the officers, and the authority of training the militia according to the discipline prescribed by Congress;

To exercise exclusive legislation in all cases whatsoever, over such District (not exceeding ten miles square) as may, by cession of particular states, and the acceptance of Congress, become the seat of the government of the United States, and to exercise like authority over all places purchased by the consent of the legislature of the state in which the same shall be, for the erection of forts, magazines, arsenals, dockyards, and other needful buildings;--And

To make all laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this Constitution in the government of the United States, or in any department or officer thereof. "

[Headless Thompson Gunner]

To borrow money, to coin money and regulate the value thereof, to regulate commerce, and to make all laws necessary to execute those powers.

These issues were established and settled back in the late 1700's and early 1800's.  George Washington signed into law the first national bank.  If you don't like it, take it up with the Founders, not me. 

[richyoung]

To borrow money, to coin money and regulate the value thereof, to regulate commerce, and to make all laws necessary to execute those powers.

These issues were established and settled back in the late 1700's and early 1800's.  George Washington signed into law the first national bank.  If you don't like it, take it up with the Founders, not me. 

None of that authorizes the government to bail out a failed investor.  This isn;t borrowing money, its at best loaning money, or giving it away, (after taking it from tha taxpayers.).  The FOunding Fathers would be suprised to hear that you think such activities are within the scope of the system they set up.

"To regulate commerce with foreign nations, and among the several states, and with the Indian tribes; "

Wall Street is not a foriegn nation.  It is also not an Indian tribe, nor a state.  Congress has no LEGITIMATE power to regulate it.


  You left out a keo part - it says:

[Headless Thompson Gunner]

We aren't discussing bailing out investors or Wall Street here.  We're discussing the existence of the Federal Reserve and their role in expanding the money supply at times like this.

Central banks have a long, legal, constitutional history here in the US.  And you're better off for it, whether you understand why or not.

[richyoung]

We aren't discussing bailing out investors or Wall Street here.  We're discussing the existence of the Federal Reserve and their role in expanding the money supply at times like this.

Central banks have a long, legal, constitutional history here in the US.  And you're better off for it, whether you understand why or not.

Congress is given the power to control the money supply - NOT the Federal Reserve.  Condescension ill-becomes you - don't fall into the mistake of confusing disagreeing with you with a lack of cogitative ability.  BTW, wasn;t the fed and an elastic money supply supposed to prevent the boom and bust business cycle?  So what happened?

[Headless Thompson Gunner]

We aren't discussing bailing out investors or Wall Street here.  We're discussing the existence of the Federal Reserve and their role in expanding the money supply at times like this.

Central banks have a long, legal, constitutional history here in the US.  And you're better off for it, whether you understand why or not.

Congress is given the power to control the money supply - NOT the Federal Reserve.  Condescension ill-becomes you - don't fall into the mistake of confusing disagreeing with you with a lack of cogitative ability.  BTW, wasn;t the fed and an elastic money supply supposed to prevent the boom and bust business cycle?  So what happened?

Congress is indeed given power over the money supply.  They exercised that authority by creating the Federal Reserve.  Where do you think Fed gets its authority, the Tooth Fairy?

If you think that the current system is bad, and that perhaps congress should control monetary policy directly, then I suggest you rethink your position.  Do you really want folks like Nancy Pelosi and Barney Frank and Barack Obama to have control over the money supply?

Elastic money isn't supposed to prevent boom and bust cycles, it's supposed to moderate them.  Now it falls upon Bernanke to attempt to moderate the current downturn, which means (among other things) trying to alleviate the stoppage in the credit markets. 

So, what's so terribly wrong about the current Fed action?  (I feel like I've asked that question before...)  Isn't this exactly what congress created the Fed for in the first place?

[nobody's_hero]

We'll have to wait and see how the markets react to Bernanke's lowering of the rates.

So far, so bad.

[thebaldguy]

People kvetch, but were the Fed to do absolutely nothing, it would be considerably more than your typical whining and belly-aching.

I am, however, curious what this will do to the Consumer Price Index. 

I was wondering the same thing about the future Consumer Price Index. I buy "I" Bonds that are inflation adjusted with the CPI. I wonder if that number won't be messed with to make things look not so bad...

[longeyes]

And when are they going to guarantee employment security?  No layoffs, .gov steps in to make the payroll?

[richyoung]

Congress is indeed given power over the money supply.  They exercised that authority by creating the Federal Reserve.  Where do you think Fed gets its authority, the Tooth Fairy?

Its NOT delegatable.  Can Congress appoint another entity to declare war?  Or pass tax legislation?

[Headless Thompson Gunner]

Congress is indeed given power over the money supply.  They exercised that authority by creating the Federal Reserve.  Where do you think Fed gets its authority, the Tooth Fairy?

Its NOT delegatable.  Can Congress appoint another entity to declare war?  Or pass tax legislation?

If you say so.  Reality seems to indicate otherwise, but you're free to your opinion.

[MicroBalrog]

So, again, would someone please tell me what the problem with this is?

1. The Fed is a government body. As such, it's decisions are political in nature. Having an unelected government body uncontrolled by the citizenry take charge of the currency is an eminently bad idea.

2. Even if we agree that the bank is Constitutional, that doesn't make it a good idea. It is technically constitutional to declare war on every single nation in the world at once, and yet that is an eminently bad idea.

3. Even if we agree that the bank is Constitutional (which JEfferson didn't. Washington signed the Alien and Sedition Acts, and they SURE weren't constitutional), this still doesn't mean giving the govenrment the power to insure and regulate banks (which is part of the Fed's function) is Constitutional. Even if it is, see part 2.

4. At least four alternatives exist for the current system. The gold standard, free banking (my favorite), monetarism, and a Fed with limited authorities.

5. You said buying up these papers is a good idea. The economy doesn't seem to be agreeing.

[Gewehr98]

Why does this gold standard thing keep popping up?

I thought we popped that like an infected boil several threads ago...

Jeebus. 

[Headless Thompson Gunner]

So, again, would someone please tell me what the problem with this is?

1. The Fed is a government body. As such, it's decisions are political in nature. Having an unelected government body uncontrolled by the citizenry take charge of the currency is an eminently bad idea.

The Fed is deliberately apolitical, unelected, and not subject to the whims of politics.  This is a good thing.  I do not want to give elected politcritters keys to the printing presses.  That's a sure way to turn the money supply into a tool for pandering and vote-buying.  Nor do I want to give the uneducated indoctrinated electorate any significant control over the process.

2. Even if we agree that the bank is Constitutional, that doesn't make it a good idea. It is technically constitutional to declare war on every single nation in the world at once, and yet that is an eminently bad idea.

I believe that it is good and necessary that the money supply be changed over time.  Therefore, it is good and necessary to have a means for changing the money supply.  I think the Fed is the best possible means.

3. Even if we agree that the bank is Constitutional (which JEfferson didn't. Washington signed the Alien and Sedition Acts, and they SURE weren't constitutional), this still doesn't mean giving the govenrment the power to insure and regulate banks (which is part of the Fed's function) is Constitutional. Even if it is, see part 2.

Regulating banks is a necessary part of regulating commerce, and of regulating the money supply.  It is constitutional.  History has shown that it's also beneficial.  During the free banking era banks had an average life expectancy of 5 years.  It was NOT good for the economy or the people.  On top of that, each region had its own banks and its own banknotes.  Conducting business in such an environment would be far riskier, far more difficult, and far less productive than what we have today.

And wasn't it Adams who signed the Alien and Sedition Acts?  I misremember.  No matter.

4. At least four alternatives exist for the current system. The gold standard, free banking (my favorite), monetarism, and a Fed with limited authorities.

The gold standard didn't work because it couldn't allow the money supply to expand properly.  It also couldn't handle international transactions and settlements.

Free banking didn't work for a variety of reasons, some of which I listed above.  The result was a series of wicked booms and busts.  Not good.

Monetarism did work the one time it was tried.  Note that it was the Federal Reserve system, under Volcker, that made it work.  There's no real reason we couldn't do it again.

I'm not sure what you mean by a Fed with limited powers.  Without defining "limited" the idea has no meaning.  I could make a case that the system we have right now satisfies that description.

5. You said buying up these papers is a good idea. The economy doesn't seem to be agreeing.

What measure are you using to gauge the effect the recent Fed action has had on the economy?  I haven't seen any numbers on the commercial paper markets today, nor any numbers on the credit markets generally.  If you have a good source for current data on those, I'd be very interested.

[nobody's_hero]

Congress is indeed given power over the money supply.  They exercised that authority by creating the Federal Reserve.  Where do you think Fed gets its authority, the Tooth Fairy?

Its NOT delegatable.  Can Congress appoint another entity to declare war?  Or pass tax legislation?

If you say so.  Reality seems to indicate otherwise, but you're free to your opinion.

Oh, come now. The U.S. Constitution is a legally binding document meant to restrain the power of government. If something is law, it cannot morph at the discretion of the judge at whim.

If the posted speed limit is 35 MPH, and you're driving 35 MPH but still get pulled over for speeding, the judge can't simply re-interpret the speed limit sign to mean 30 MPH.

To consider the Constitution as a constantly morphing document—of which its meaning is left to the discretion of 9 life-long serving despots in black robes—is to have no respect for the rule of law. The document was written by 18th century farmers with the equivalent of an 11th grade education (back in those days, that was pretty good). It is not likely that they wrote it in some archaic code, only to be deciphered by those who have magic decoder rings. If you want it to change, you have to amend it.

IT MEANS WHAT IT SAYS.

Next, you'll be telling folks that the right to own firearms is a collective right. 

"Our peculiar security is in the possession of a written Constitution. Let us not make it a blank paper by construction." --Thomas Jefferson to Wilson Nicholas, 1803. ME 10:419

"On every question of construction, carry ourselves back to the time when the Constitution was adopted, recollect the spirit manifested in the debates and instead of trying what meaning may be squeezed out of the text or invented against it, conform to the probable one in which it was passed." --Thomas Jefferson to William Johnson, 1823. ME 15:449

[LAK]

The Fed is deliberately apolitical, unelected, and not subject to the whims of politics.  This is a good thing.  I do not want to give elected politcritters keys to the printing presses.  That's a sure way to turn the money supply into a tool for pandering and vote-buying.  Nor do I want to give the uneducated indoctrinated electorate any significant control over the process.

By golly, give control of elastic ... elastic? .. ur money to Congress and they'd steal from us. Next thing you know we'd be paying them an extra $400 billion dollars a year in interest payments ot them!

And yes; a judge can rule that 35mph does in fact mean 30mph.

And yes, it is a collective right.

[richyoung]

By golly, give control of elastic ... elastic? .. ur money to Congress and they'd steal from us. Next thing you know we'd be paying them an extra $400 billion dollars a year in interest payments ot them!

And yes; a judge can rule that 35mph does in fact mean 30mph.

And yes, it is a collective right.

Was that sarcasm?  My meter's broken...

 

[MicroBalrog]

The Fed is deliberately apolitical, unelected, and not subject to the whims of politics. 

Any authority that exerts political power is political. That includes the Fed, the Supreme Court, the Joint Chiefs of Staff, whatever.

Regulating banks is a necessary part of regulating commerce, and of regulating the money supply.  It

Regulating commerce between the several states, you mean?

Free banking didn't work for a variety of reasons, some of which I listed above.  The result was a series of wicked booms and busts.  Not good.

The US system in the 1840's was neither free banking – it was heavily regulated on the state level and hinged on corruption, interstate branch banking was illegal, and bribery of officials was often used to avoid having them enforce the law – nor did it lead to anything remotely like the 1880's recession or the Great Depression. But even if we ignore the great body of economic review of the US 'free banking' system that exists today – among other things, challenging the notion that wildcat banking was as common as it seems – that time period is simply not a good example of a free banking experiment.

A better example is Scotland's free banking in the 18th and 19th century, which worked almost flawlessly.

Monetarism did work the one time it was tried. 

Monetarism means limiting the growth of the money supply by law. This was never done. The problem is that there are many money supply indicators, some of them arbitrary. They do not move in lockstep with each other – so if you want to limit the growth of money supply, you msut specify which you want to limit – and let the others run free. Further, long term monetarism requires far more extensive regulations on banking (and far more government intrusion) than we have today. As such it works exactly to oppose the goals that its founders, like Friedman, had in mind.