Federal Reserve to not seek power to issue its own debt as bonds

June 9, 2009 by · Leave a Comment
Filed under: Policy News 

This is a good development, we don’t fully grasp the consequences that the U.S. taxpayer could face when you have an independent central bank that can issue debt that is explicitly backed by the government.  Being independent, they can create obligations that we do not have full oversight.  The issuance of debt that has to be repaid by taxpayers is something that should always be the prerogative of the people through there elected representatives.  If it is not then we have a supreme power that affects us all and is not by our own will.

News (Bloomberg):

The Federal Reserve has backed off from seeking a new tool to forestall inflation, refraining from asking Congress for the power to issue its own debt, according to a person familiar with the matter.

Putting off the issue may avoid a political clash over whether the Fed should begin winding down its emergency lending programs while unemployment remains elevated. The central bank intends to rely instead on paying interest on banks’ reserve deposits to prevent a flood of cash into the economy.

After central bankers repeatedly said Fed bills would be a useful additional tool to mop up liquidity, Chairman Ben S. Bernanke omitted mention of the idea in congressional testimony last week. The person, who spoke on condition of anonymity, said the Fed hasn’t made a formal request to lawmakers.

“It’s important that we have all the tools in place” for the Fed to drain liquidity when it’s ready, House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said in an interview. Still, “it would be a mistake to start dealing with that before you know when, how, how much, et cetera.”

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