Sunday, January 4, 2015

Open letter to the board members of the Federal Reserve

Current policy is a step in the right direction but will lead to hyperinflation in the next few years.

Maturing bonds are apparently $3.5 billion this year.  Replacing them with created cash will place $3.5 billion in the hands of bond holders who will spend it.  That is inflation, but not a whole lot.

In a few years, maturing bonds will become much more significant.  With $18 trillion outstanding, when will the first $1 trillion maturing occur?  You have that data.


You need an accounting rule or legislation that will stop the cash creation.  The Fed can borrow from another institution against its assets OR they can sell assets and purchase bonds.

So, when the Fed replaces the bonds that reach maturity they have 3 choices:
1. use the proceeds from the maturing bond
2. borrow against other assets
3. sell other assets for dollars

If you'd like more solutions, let me know.

Andrew Bransford Brown

PS. the number of Wall Street firms with fees on top of fees and selling forward every penny on the anticipated transactions is incredible.  Get back to basics, toss out the middle man, and the Treasury and Federal Reserve would reap a windfall.

Friday, January 2, 2015

Ending quantitative easing

It appears that the new Fed policy is to end the purchase of new bonds. So, they are not printing money any more. As long as that policy holds tight. 

As the Treasury has a $1 trillion shortfall in revenue, they will be forced to sell new bonds to the general market.  Hopefully, the market will place pressure on Congress to balance their budget.

That might lead to a strong dollar.

As the Fed appears to be maintaining static balances of T-bonds, I hope they aren't creating cash to replace the bonds as they mature. If the Treasury pays the principal, the Fed can use the proceeds to replace it.