Monday, October 31, 2011

Central Bank History

I have been advocating that the Fed should make loans to the Treasury to finance public intrastructure and consumer spending. If you think this is completely crazy, keep in mind what has actually happened. During the height of the recent financial crisis in 2007, the Fed loaned a German bank $350 million and Citigroup, JP Morgan, Bank of America, and Wachovia each $500 million. All this and more was done to keep the banks solvent so they could make loans to business.

None of this cost the American taxpayer a dime. The Fed was doing what any bank does everyday for its commercial customers, creating money by making loans. Security? The banks pledged various assets including residential mortgages that no one knew exactlly what they were worth. What could the US Treasury use for security? Why not the human capital assets of the nation? This would allow the Treasury to finance such local gvernment investments as teachers instead of laying them off. This makes too much sense and therefore probably won't be done!

For more, read William Krehm at

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