Posted by Karl Denninger
Feb. 18 (Bloomberg) — Federal Reserve officials set a long-term goal to keep only U.S. government securities in their portfolio as they debated how and when to pull back on the most aggressive monetary policy in U.S. history.
Central bankers are planning to eventually remove $1.43 trillion of housing debt from the balance sheet after critics such as Stanford University economist John Taylor accused them of straying beyond monetary policy. Philadelphia Fed President Charles Plosser said yesterday that the Fed’s purchases of housing debt expose it to demands from politicians to support other industries.
Taylor may have accused them of straying beyond monetary policy but stopped short of saying what I have – that The Fed’s mandate and lawful authority stops at monetary policy.
Yes, I know all about 13(3). That section of the Federal Reserve Act allows them to make loans to anyone (including individuals!) in “unusual and exigent circumstances.” They’ve done a lot of that too, and whether distasteful or not, it is clearly within the (current) confines of Fed authority.
But asset purchases are another matter. I know all about the debate over the so-called CFRs but a CFR does not override a statute, and the statutes are clear – you need a full faith and credit guarantee for an asset to be able to be owned by The Fed.
The purpose behind this is clear on it’s face as well – only such an irrevocable guarantee prevents the possibility of The Fed being used as a vehicle to subsidize losses taken on credit instruments by The American People without the consent of Congress.
Since all revenue bills must (by The Constitution) originate in The House, such a position and clause is necessary for The Federal Reserve Act to be Constitutional on its face. Absent that requirement (in fact and practice, not in principle) The Fed is a blatantly unconstitutional body in that it has usurped the constitutional requirements for imposition of a tax or impost on the American People.
Some of the Fed’s emergency actions “blurred the line between monetary policy and fiscal policy, thereby increasing the risk to the Fed’s independence,” Plosser said in a speech. “These policies have veered toward deciding how public money should be allocated across firms and sectors of the economy.”
These “blurring of the lines” are not a risk to Fed independence they are blatantly unlawful as a violation of the Constitutional prohibition on the imposition of revenue and spending except through a bill originating in the House of Representatives.
What Plosser and others in The Fed (and beyond it) refuse to recognize and admit is that these “threats” to Fed independence have and are coming about as a direct consequence of The Fed’s wanton violation of the highest law of the land – The US Constitution.
By effectively appropriating funds, beginning with Maiden Lane I (Bear Stearns) which, by the way, is now showing a huge mark-to-market loss (despite claims by Bernanke that such a loss would not happen) and continuing through what I argue is an artifice of a structure with the Maiden Lane vehicles related to AIG, along with the Fannie and Freddie MBS subsidies The Fed has stepped beyond the bright white line that delineates its power and has decided to arrogate to itself the power of the purse – a power that under the Constitution is restricted to The House of Representatives.
That our Congress and Executive is too spineless to stand up to these clowns and throw the lot out on their ear, revoking The Federal Reserve Act due to the willful and wanton violation of the boundaries thereupon along with willful disregard for The Constitution, is where the real problem lies.
Plosser’s bleating is amusing, but The Fed finds itself with this pressure as a direct and proximate consequence of its own actions, much like someone who complains about their thumb being in pain – after they hit it with their own hammer.
Wake up Chuck; you’re well beyond requests that you smell the coffee – you spilled it down your shirt!