Monday, March 24, 2008

Who Has The Fed's Back?

If the Fed runs out of money, who has the Fed's back? I ask this question not to knock the Fed but rather as a question that may need to be answered. The Fed's balance sheet is about $700 billion worth of Treasuries. They have recently opened up quite a bit of that to the Street. What if the Fed over extends itself? Who has the Fed's back?

Maybe there is nothing here. I thought it might be worth exploring though. First it was just regular banks that the Fed lent to. Now it is also the Investment Banks. Interesting as the Fed has expanded its reach. I would doubt that at the moment that the Fed is extended but if it continued to expand its reach and other banks or investment banks needed its help, would the Fed be able to answer the call? Something to ponder.

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