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Should Congress Place a Cap on The Fedís Balance Sheet? The Demint/Lee Senate Bill S.3240
Confounded Interest ^ | June 13.2012 | Anthony B. Sanders

Posted on 06/13/2012 8:42:34 AM PDT by flyingtabby

It is no secret that The Fed is mulling over further monetary stimulus. Whether it is quantitative easing (QE3) or curve twisting (Twist3) remains to be seen.

Senators Jim Demint (R-SC) and Mike Lee (R-Utah) have proposed legislation, S.3240, that caps the balances of reserves of depository institutions. AYO12664

“Notwithstanding any other provision of law, no action may be taken by the Board of Governors of the Federal Reserve System or the Federal Open Market Committee on or after the date of enactment of this Act that would result in the total of the factors affecting reserve balances of depository institutions exceeding the balance as of June 8, 2012.”

And

“It is the sense of Congress that the Federal Reserve System should expeditiously take substantial steps to reduce the size of its balance sheet to levels below those that prevailed prior to the financial crisis of 2008.”

Their argument:

After the financial crisis of 2008 the Federal Reserve took a number of unprecedented steps in an attempt to stabilize and stimulate our economy, though the end result has been uncertainty and stagnation. Through two rounds of quantitative easing, the Fed has expanded our base money supply more than three times, and it has dramatically expanded its own balance sheet to where it stands today, at almost $2.9 trillion.

What did these two rounds of quantitative easing, called QE1 and QE2, involve?

- QE1: At the end of 2008, the Fed began actively propping up the housing market, purchasing $100 billion of GSE direct obligations guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae and $500 billion in mortgage backed securities (MBS). In mid-2009 QE1 was expanded with the purchase of an additional $1.25 trillion of MBS and $300 billion of longer-term Treasury securities.

(Excerpt) Read more at confoundedinterest.wordpress.com ...


TOPICS: Business/Economy; Government
KEYWORDS: jimdemint; thefed
Excellent!
1 posted on 06/13/2012 8:42:48 AM PDT by flyingtabby
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To: flyingtabby
A cap won't help and it might give a false sense of security that they "haven't reached the cap yet".

The reason it won't work, is that any subsequent congress can raise the cap. You already have a cap on debt, so what is an additional cap going to do for you?

What is needed is for the electorate to elect responsible representatives. Anything short of that is putting a bandaid on a cancer.

2 posted on 06/13/2012 8:53:14 AM PDT by DannyTN
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To: DannyTN

“Mr Speaker, I wish to ask for unanimous consent to waive the rules....”

It is often that easy.


3 posted on 06/13/2012 9:05:00 AM PDT by Loud Mime (Defeat Obama. Everything else is secondary)
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To: DannyTN
But then its a vicious circle because the current system rewards congress critters who are irresponsible by allowing them the plunder a treasury bloated with money 'borrowed' from the Fed.

I would think high growth policies are the real solution, but the current system rewards rent-seeking insiders who constrict opportunities for growth.

4 posted on 06/13/2012 9:46:10 AM PDT by pierrem15 (Claudius: "Let all the poisons that lurk in the mud hatch out.")
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To: flyingtabby

Capping the Fed is important. Good for Demint.


5 posted on 06/13/2012 9:50:47 AM PDT by Southack (Media Bias means that Castro won't be punished for Cuban war crimes against Black Angolans in Africa)
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To: pierrem15
"But then its a vicious circle because the current system rewards congress critters who are irresponsible by allowing them the plunder a treasury bloated with money 'borrowed' from the Fed."

Don't blame the FED. The system rewards congress critters regardless of who they borrow from.

It could just as easily be China. Congress would have to borrow at a higher rate, but if they are irresponsible in the first place, don't think twice that they will promise that your children will pay that higher rate.

The FED is the only institution that has actually been doing what they are supposed to do. They only started loaning money when unemployment started spiking. The crisis was created without the FED's help. The FED is simply responding.

I blame the oil price spike as the primary cause of the crisis. It sapped consumer disposable income and that resulted in a spiral of lost jobs that in turn caused the mortgage crisis. Oil prices combined with unwise trade policies that have caused us to lose a lot of industries are the cause of this mess.

Government irresponsibility hasn't helped. A stimulus plan was a viable idea, but Obama wasted it on croynism and increasing the size of government instead of building infrastructure that would give a payback.

6 posted on 06/13/2012 9:59:46 AM PDT by DannyTN
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To: flyingtabby

Section 7 of Public Law 95-435 states, “Beginning with fiscal year 1981, the total budget outlays of the Federal Government shall not exceed its receipts.”

They have completely ignored that one, what make you think that they will obey another?


7 posted on 06/13/2012 10:45:36 AM PDT by JimRed (Excising a cancer before it kills us waters the Tree of Liberty! TERM LIMITS, NOW AND FOREVER!)
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To: JimRed

Exactly.

Hussein don’t need no Constitution or Congress.


8 posted on 06/13/2012 10:59:34 AM PDT by bgill
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