For all who have written asking for a clear and succinct summary of all of the Fed's various market intervention mechanisms, we provide the
following overview report written by the Fed itself. Topics covered include Monetization, Excess and Borrowed Reserves, Open Market Operations (Outright and Temporary), Repo transactions, Currency, Clearing Balances,and many others.
This note on Excess Reserves is particularly amusing (this is as of 1997 so the no interest earned provision is no longer true): "Excess Reserves (ER). A depository institution may choose to hold balances at its Federal Reserve Bank in addition to those it must hold to meet reserve requirements; these balances are called excess reserves. Depository institutions hold excess reserves to avoid deficiencies in their required reserve balances and to avoid overnight overdrafts, both of which are subject to charges. In general, depository institutions hold few excess reserves because these holdings do not earn interest. Most excess reserves are held by small depository institutions for whom the cost of very close management of reserve balances would exceed the interest they could earn by holding fewer excess reserves. Vault cash held in excess of reserve requirements is not included in excess reserves or in total reserves."
And the following brief note on monetization: "The Desk may not add to the Federal Reserve's holdings of securities by purchasing new securities when they are first auctioned because it has no authority to lend directly to the Treasury. Therefore, it must make any additions to holdings
through purchases from primary dealers in the secondary market or directly from foreign official and international institutions."
We hope readers begin to grasp the critical role the Fed has in controlling not just America's monetary, but also political fate.
