[DantesPeak]

$this->bbcode_second_pass_quote('', 'T')he Treasury announced Wednesday it would sell $60 billion in cash-management bills on Thursday under a program designed to raise cash for the Federal Reserve.

[DantesPeak]

$this->bbcode_second_pass_quote('', 'F')loyd Norris
September 17, 2008, 12:00 pm
Flight to Quality
A money manager advises that the ultimate flight to quality is under way, and he cannot find Treasury bills to buy. He told me that he had to go out to December to find a T-bill that he could purchase with any yield at all, and that was well under one-tenth of a percentage point. The others, if they could be purchased at all, were available only for the amount they will be worth when they mature.
What is going on here? I suspect there is a run on money market funds, or at least the ones that do not own only super-safe assets. With the money going into Treasury funds, they must find very-short-term Treasuries to buy.
But that run may have more serious consequences. Many money funds own asset-backed commercial paper that they seem to have rolled over time and again. The assets backing the paper may be very hard to sell even close to par if the conduit that issued the paper cannot get alternative financing. If that paper is sold, the new market value could force other money market funds to break the buck, and away we go in another downward spiral.
One way to halt that spiral could be for banks to take the funny paper as collateral for loans, and then pledge it at the Fed to secure loans. (The Fed has liberalized its lending rules.)
And in the end, the government may end up owning a lot of very dubious paper.

[CrudeAwakening]

It seems to work like this:

Treasury draws up bills and auctions them. Result: Buyer's bank loses reserves, Treasury deposits money received with Fed. At this stage, there is no net change to asset or liability side of Fed balance sheet, but total bank reserves have fallen. Effectively, bank reserves have been converted into treasury deposits.

Then the Fed buys bills and causes bank reserves to increase, offsetting the decrease in reserves. Net result: an equal increase in A&L sides of Fed balance sheet, but no change to the monetary base, provided the treasury deposits are "frozen" and not spent. If they are spent, reserves increase and the result is similar to direct monetisation. The Treasury can control whether this is inflationary or not.

$this->bbcode_second_pass_quote('', 'T')he new Treasury Supplementary Financing Program announced on Wednesday will help the Fed finance its loan to AIG, note the analysts at UBS. The Fed will allow its balance sheet to expand, but the impact on banking system reserves and the monetary base will be neutralized or sterilized by the Treasury depositing special T-bill auction proceeds in its account at the Fed. In short, the expansion will not be equivalent to printing money.

[SolarDave]

And then children, on September 17, 2008, the United States admitted there was a new fourth branch of government, the Financial Branch.

Unlike the other three branches, there were no checks and balances on this branch. Our Founding Fathers never conceived of the kinds of things this branch of government does day after day. The new branch of government is what really controls the country, with no democratic process involved whatsoever. They are very good at doing amazing things with money. They are even better at doing things with debt!

And that's why each of us in America has a Debt Card. No, Billy, not a Debit card. It's the other one, with the picture of the President on it. The Debt card shows how much money your government spent on your parent's behalf before you were born, plus everything spent on your behalf after you were born up to right now - and that is how much money we all now owe the US Government. On Sept 17, 2008, the day the new branch of government was officially recognized, almost $300 of was spent for every man, women and child in the United States - in just that one day!

See how the numbers keep changing? All the cards a linked to the Master Debt Counter in Washington, so you can see what is happening to your future as it happens.

Study hard, children, so you can get good jobs, and start to spin that number the other way. Your future children are counting on you.