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The Federal Reserve is Running Out of Money & Resolution Trust Plan now Floated

 September 17, 2008 02:27 PM

Some of the end games are quickly approaching

Per Tony Crescenzi on Realmoney.com

The Fed had close to $800 billion of Treasuries at the start of the year. Last week the Fed had $479 billion in Treasuries, of which $200 billion was pledged to the term securities lending facility, the facility whereby the Fed lends its Treasuries to dealers in exchange for agencies, mortgage-backed securities and other non-Treasury collateral.

If the Fed lends $85 billion to AIG (AIG - commentary - Cramer's Take), the Fed's Treasury holdings will be down to $195 billion. The tally is so low that it is becoming imperative for the Fed to take actions to enlarge its balance sheet.

So how do you enlarge the balance sheet? You do emergency auctions of Treasuries
  • The U.S. Treasury said it will sell bills to allow the Federal Reserve to expand its balance sheet, a day after the government agreed to take over American International Group Inc.
  • ``The Treasury Department announced today the initiation of a temporary Supplementary Financing Program at the request of the Federal Reserve,'' the department said in a statement today. ``The program will consist of a series of Treasury bills, apart from Treasury's current borrowing program.'' The new bill program ``will provide cash for use in the Federal Reserve initiatives,'' the Treasury said.
Gold is finally reacting, up 6%. But if this due to the printing presses working 24/7 in America or the "Armageddon" scenario, who knows. Pathetically the dollar is barely down. As we print more by the minute. Open question - what happens if Citigroup (C) fails? Morgan Stanley (MS) - down 35% today? Wachovia (WB) - down 25% today? All are "too big to fail" - where will the money come from? I think the market is starting to finally figure out there are not enough fingers to plug the springing links throughout the system. Bush should be on the phone with every country in the world who actually has cash and be on his knees asking for them to send their sovereign wealth funds in to help save the system. This is what debtors due when the bills finally come in - beg.

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