Treasury selling “Cash Management Bills” as debt to help Fed’s balance sheet

September 17, 2008 by · Leave a Comment
Filed under: Economic News 

This new facility is called the “Supplementary Financing Program”.  In my opinion after reading the details, this is just another expansion of the U.S. monetary base which is going to lead to price inflation in the months ahead.  This was done in response to the $85 billion bailout (revolving loan) of AIG.  If they did not do this it would of taken over 10% of the Federal Reserves’ balance sheet which the last quoted figure was $800 billion dollars.

The markets has reacted negatively to this news and this now set precedent for more taxpayer money for other insurance companies.  The question is where does this stop and we let the market operate in a free-market fashion?

News:

The U.S. Treasury Department quickly put a new special financing facility to work on Wednesday, raising money for the Federal Reserve to use in a costly bid to rescue crumbling U.S. financial institutions.

Just minutes after unveiling the financing program, Treasury said it would sell $40 billion of cash management bills — essentially a fresh batch of debt — on Wednesday at the U.S. central bank’s request as part of what a Treasury official called an attempt to “help them better manage their balance sheet.”

Auction results were expected in early afternoon.

Treasury’s announcement of a new “supplementary financing program” came hours after the Fed offered up to $85 billion in loans to rescue crippled insurer American International Group (AIG) — a move that gives the Fed nearly an 80 percent stake in the company.

The decision was only the latest in a series of dramatic moves since March by Treasury and the Fed to prop up financial companies reeling under the impact of a deepening credit crisis, and put the taxpayer even more at risk.

By rough estimate, the various bailouts and loan pledges so far tally more than $900 billion, including a promise by Treasury earlier this month to inject up to $200 billion in Fannie Mae and Freddie Mac after it seized control of the two mortgage financing companies.

Treasury said its new financing program was being established at the specific request of Fed. Treasury said it was intended to be temporary, but offered no guess about how long it will last.

“The program will consist of a series of Treasury bills, apart from Treasury’s current borrowing programs, which will provide cash for use in the Federal Reserve initiatives,” Treasury said.

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